RBZ sinks US1,5bn into the economy

A CUMULATIVE US$1,5 billion has been allotted to importers on the central bank administered weekly auction system for key imports since the platform was introduced in June last year, making it the major source of foreign currency for the productive sectors.

But the bank admitted it has not been all smooth sailing since launching the auction 12 months ago. Monetary authorities have battled a range of misconduct by unscrupulous beneficiaries regarding compliance to standing rules.

Latest figures from the central bank showed the bulk of the funds went towards procurement of key raw materials, machinery and equipment, pharmaceuticals, retail and distribution and consumables.

Reflecting on the foreign currency trading system, as it turned one-year-old on Tuesday last week, the Reserve Bank of Zimbabwe (RBZ) commended the platform for stabilising the economy and reducing inflation.

RBZ governor Dr Mangudya said the auction system had brought exchange rate ($85/US$1) and price stability, resulting in rapid inflation decline, after the rate peaked at 837,5 percent in July 2020.

Zimbabwe experienced exchange rate volatility in the first half of last year, which drove price hikes, after floating its domestic currency upon reintroduction in 2019 following a decade-long hiatus, forced by hyperinflation.

The auction system is now Zimbabwe’s most dependable and preferred source of foreign currency for registered operators, disbursing a cumulative average of US$45 million weekly for both large and small entities.

As a result of its impact, the RBZ says inflation will fall to around 102 to 103 percent this month, further reducing to 55 percent by July 2020 and the impact is expected to be felt by both industry and consumers.

The central bank sees the rate plunging to single digit by year end, far lower than World Bank’s conservative 86 percent.

“Going forward, it is the desire and aspiration of the (central) bank to strengthen the auction system to ensure it achieves greater heights to grow the economy and reduce inflation,” Dr Mangudya said.

The central bank chief said the bank’s vision is to continue to maintain the financial system and price stability through a more stable exchange rate, which the auction has assisted greatly.

The RBZ implored registered traders to continue accepting payments in foreign currency, as it remains a legal tender in Zimbabwe, to ensure foreign currency keeps circulating within the formal sector of the economy.

On the basis of growing stability in the economy, Dr Mangudya said, the bank was positive the economy will achieve the Treasury’s economic growth target of 7,4 percent this year.

“The stability has helped the economy to grow. Local businesses now contribute 65 percent of the produce sold in the local market, thereby cutting products that are imported,” he said.

Zimbabwe’s economic stability has also greatly benefited from ironclad grip on fiscal and budgetary discipline, which saw the country achieve a budget surplus of 0,3 percent in the first quarter.

Dr Mangudya said the biggest challenge the central bank has faced since launching the auction system has been non-compliance by the intended beneficiaries of the auction system.

“We say one bid per client, but some (errant) businesses bring multiple bids through the usage of shelf companies, thereby defeating the rule of the auction system” Dr Mangudya said.

Further, some beneficiaries of the auction have broken the rules by charging pricing far removed from the ruling auction rate, part of the transgressions Statutory Instrument 127 seeks to correct.-ebusinessweekly.cl.zw