‘High forex retentions can impede exporters’
ANALYSTS say high foreign currency surrender requirement thresholds instituted by the Reserve Bank of Zimbabwe (RBZ) will impede exporting businesses’ ability to grow export capacity and diversification.
On October 23, 2023, the RBZ announced that “foreign currency retentions on all exports shall be standardised at the level of 75 percent across all sectors of the economy and all special dispensations granted to some sectors of the economy shall be removed.”
The apex bank cited that the process would enhance foreign exchange resources available to the apex bank and government for settling foreign exchange requirements for the settlement of national and international debts.
This, according to the central bank, is to support the local currency through the sale of USD in both the wholesale and retail auction markets.
High foreign currency retention also provides a buffer against external shocks and helps maintain economic stability.
In times of crisis or external imbalances, having a sufficient level of foreign currency allows the central bank to intervene in the currency market, stabilize the economy, and prevent disruptions in productive sectors.
However, analysts are of the view that the government must explore other innovative revenue collection strategies targeting particularly the hard-to-tax informal sector where more US dollars are circulating.
Chief among the sectors that are bound to be affected by these high retentions are mining firms, as they rely on imported machinery and accessories translating to a significant reliance on foreign currency.
However, according to a local think tank, Zimbabwe Coalition on Debt and Development (ZIMCODD) these high foreign currency surrender requirements are unreasonably distressing exporters while supporting importers.
“These high foreign currency surrender requirements are disproportionately hurting exporters while subsidizing importers. On one hand, exporters are being forced to cede their valuable US dollars in exchange for a volatile Zimbabwe dollar. Yet large exporters like miners are required to pay electricity in US dollars in addition to other US dollar demands for such a capital-intensive industry.
“On the other hand, importers who are getting US Dollars from RBZ auction systems are keeping 100 percent of US dollars earned from domestic sales. In light of the foregoing, it is clear that the RBZ’s export surrender requirements have become a bad policy instrument that is now discriminating among various economic players,” said ZIMCODD in its quarterly communique.
Analysts have repeatedly exhorted the government to consider reducing the thresholds to levels lower than 10 percent to promote ease of doing business locally and stimulating export growth and diversification.
“Exports play an important role in the economy, influencing the level of economic growth, risk mitigation, employment, global competitiveness, and the balance of payments.
“As such, these surrender requirements must be eliminated or at least lowered to five percent, in order to reduce the cost of doing business and promote exports. Since in most cases taxpayers are required to settle their tax dues in the currency of trade, the government will surely continue to earn USD taxes from exporters.”
Economist and trade specialist, Josephine Zikomo said while high foreign currency retention can provide stability and resilience to the productive sectors, it remained crucial to strike a balance to ensure that it does not hinder the sectors’ ability to access necessary inputs or undermine diversification efforts in the long run.
“If the central bank retains too much foreign currency, it may limit the availability of foreign exchange for the private sector, potentially hindering the productive sectors’ ability to import necessary inputs.
This can lead to higher input costs or supply shortages, which can dampen productivity and competitiveness,” said Zikomo.-ebusinessweekly
