‘Govt won’t relent on protecting local currency’

GOVERNMENT remains seized with the implementation of aggressive measures to protect the value of the local currency and ensure inflation remains at acceptable levels, a senior official has said.

This was said by Finance, Economic Development and Investment Promotion Deputy Minister, David Mnangagwa at the entrepreneurs networking dinner hosted by “Financial Fitness Health Centre” in Harare.

The meeting sought to enlighten entrepreneurs on the current state of the economy and the future prospects for budding business players.

Inflation has recurrently proved to be a cancer in the local economy despite concerted efforts by the Government to arrest price increases caused mainly by currency depreciation, which erode savings and incomes.

In May 2023, the Government introduced several measures to promote the use of the domestic currency in the economy, reacting to the freefalling exchange rate and rising inflation.

The measures included allowing 100 percent retention of domestic foreign currency earnings, adoption of all external loans by the Treasury and enhancing the operation of the foreign exchange auction system.

Also, the central bank liberalised foreign exchange trade allowing the market to determine the exchange rates through the Willing Buyer Willing Seller (WBWS) system, an arrangement where banks acquire foreign currency from the Reserve Bank of Zimbabwe (RBZ) at a wholesale price for sale to their clients.

This was coupled with the Government’s directive that taxpayers settle 50 percent of the foreign currency portion of their corporate tax obligations in local currency starting from the June 2023 Quarterly Payment Date (QPD).

The measures were implemented after the Zimbabwe dollar suffered bouts of depreciation in May and June as the parallel market exchange rate plummeted.

On the other hand, year-on-year blended inflation had spiraled to a high of 175, 8 percent in June this year while month-on-month closed at 74, 5 percent.

However, following the implementation of the measures, the parallel market exchange rate cooled off while prices have stabilised.

The year-on-year inflation has since receded to 17, 82 percent (October 2023 figure) while month-on-month inflation closed the month at 2, 46 percent.

The foreign exchange rate has stabilised to the prevailing $5 755 as of the November 14 2023 auction.

In terms of the foreign exchange rate, the Zimbabwe dollar reached an all-time low of $6926 to the greenback on 20 June 2023.

“There is an active effort to protect the value of our local currency, stabilise the exchange rate and inflation so that we protect the value of our budget, value of our pensions, and bring sanity to the whole ecosystem. Inflation and exchange rate have been an albatross to business and entrepreneurship, but you will find there has been some form of stability in the past two months.

“I mention the two because they move together in Zimbabwe, in other countries’ exchange rates and do not really move together.

“Through tight monetary and fiscal consolidation policies, the Government is responsibly containing the money supply and the money creation aspect,” said Deputy Minister Mnangagwa.

He, however, encouraged Zimbabweans to desist from speculative behaviour which sometimes causes a turbulent economic environment despite vibrant economic policies in place.

“We have to admit that we have hysteresis, a psychological factor that comes from where we have been as Zimbabweans, we have been to a space where we have experienced hyperinflation.

“This behaviour has been embedded in us and even if all fundamentals are right that behaviour just kicks in, you find that this is bonus month, with no new money created within the system but the fact that some predatory dealer knows that civil servants are getting bonuses will say the rate is now $8500 and just like that the rate goes up,” he said.

-herald