‘Govt policy measures to anchor durable stability’

POLICY initiatives introduced by the Reserve Bank of Zimbabwe (RBZ), chief among them the introduction of gold coins and gold-backed digital tokens, will go a long way in preserving the value of the local currency and promoting the liberalisation of the foreign exchange market, leading stockbroking firm, FBC Securities, has said.

FBC said this in its commentary on the 2023 Midterm Monetary Policy Review statement released by the central bank last week, which emphasised the critical importance of staying the course of policy initiatives introduced by the Government since May this year to stabilise the economy.

This came after Zimbabwe experienced widespread prices in the second quarter of this year due to the depreciation of the domestic currency.

Authorities responded through a series of policy measures, which have successfully restored macroeconomic stability.

The measures included hiking the bank policy rate from 140 to 150 percent, transferring external payment obligations from the central bank to the Treasury, and collecting all duties (except for luxury goods) in local currency.

Further, the Government directed the Zimbabwe revenue authority to collect in local currency half of corporate tax payable in foreign currency and all statutory fees and charges to be settled in the domestic currency, among other measures.

The policy measures halted the flow of excess liquidity into the economy and increased demand for the domestic unit, which has seen it appreciate against the greenback.

Zimbabwe dollar prices of goods and services, inflation and parallel market exchange rates have been plummeting in response to the strengthening domestic currency.

FBC Securities singled out the introduction of gold coins and gold-backed digital coins as key initiatives that, if managed well, could provide a lasting solution to currency volatility.

“Gold coins have been an efficient liquidity management tool, reported to have mopped up circa $50 billion locally to date.

The transactional phase of the Gold backed Digital Coins (GBDT), if successfully implemented, should reduce demand for USD as a medium of exchange and value preservation,” the stock broking firm said.

Efforts to reduce demand for US dollars, FBC Securities said, should complement continuous liquidity management efforts in taming currency volatility.

“The successful introduction of gold coins as an alternative value-preserving asset is likely to continue to impact the stock market’s performance. Given negative real returns on the market, we expect investors to continue to seek alternative options for value preservation,” they said.

In his 2023 monetary policy review statement released last week, RBZ Governor Dr John Mangudya said the foreign currency auction system remains a critical source of foreign currency for the economy.

“We shall continue with the current auction system in place and further liberalise the use of foreign exchange from the wholesale auction system by allowing banks to meet bonafide small foreign payment requirements for their customers, including individuals and Micro, Small and Medium Enterprises (MSMEs) in order to enhance financial inclusion.”

Further liberalisation of the foreign exchange market use remains as key component in reducing the parallel market rate premium and achieving rate convergence.

According to FBC Securities liberalisation of the foreign exchange market augurs will facilitate the distribution of foreign currency through formal channels, limiting the need to use parallel market sources.

“In terms of Section 4 of the Exchange Control (Tobacco Finance) Order, Statutory Instrument 61 of 2004, tobacco merchants are required to source offshore financing to produce and buy back green leaf tobacco. Tobacco merchants who fail to secure offshore financing are required to apply to the bank for authority to raise funds on the local market.

“With immediate effect, there will be no restrictions on the use of locally sourced funds to support the production of tobacco in the country,” the RBZ said in its monetary policy.

Tobacco growing remains one of the cornerstones of the country’s agricultural sector and lifting restrictions on the use of locally sourced funds in tobacco production should be beneficial in supporting growth in the sector and increasing output.

“Performance of the sector has been positive in the current year, with output reaching a record high of 295 million kg in 2023. This positive performance should be further augmented by improved access to funding from local sources,” the statement read.-herald