Monetary policy to tackle exchange rate instability

Finance Minister Prof. Mthuli Ncube
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TREASURY has said the forthcoming Monetary Policy Statement (MPS) is expected to prescribe several long-term interventions to stabilise the Zimbabwe dollar exchange rate.

This comes as the Zimbabwe dollar has been losing ground against the US dollar, which has seen the exchange rate being noticeably unstable since December last year.

In the recent past, the instability has been driven by several factors including speculative behaviour, an increase in market liquidity and suspected economic saboteurs amid already high demand for foreign currency.

In an interview after touring Bulawayo’s manufacturing giants, Arenel Foods and Baker’s Inn, Finance, Economic Development and Investment Promotion, Minister Professor Mthuli Ncube said the monetary policy statement will be released soon.

“We are working on some measures, people should be patient, we will release a monetary policy statement in the not-so-distant future which will deal with volatility and weakness in the currency.

“Just be patient, we want to make sure that we do it right, undertaking some consultation with various stakeholders in the industry, within Government and international organisations, but also some currency experts that we have consulted. We want to make sure that we have all the arsenal of knowledge that is needed to produce a lasting solution to the volatility and weakness of the currency,” he said.

Early this year, the exchange rate instability resulted in price increases of products and services, putting them beyond the reach of many, but several swift interventions by the Government restored sanity in the market.

Meanwhile, on tackling the informal sector, Prof Ncube said various strategies were in place to ensure they address the challenges of informalisation in the market.

“So we have tried to use the route to market rules to deal with that, which requires formal businesses that are dealing with the informal businesses to require some registration such as value added tax (VAT) registration and at least charge VAT withholding tax and so forth.

“We are using the formal businesses to deal with the informal businesses that has been one strategy. The other strategy has been the intermediated money transfer tax (IMTT) which we believe has gone a long way in formalising some of the businesses that were not paying their taxes,” he said.

Prof Ncube said the Government was also aware of the challenges of some businesses requiring cash payments thereby escaping the IMTT, while the third strategy was the presumptive tax levied on informal traders, small-scale miners, cottage industry operators, transport operators, hair salons and bottle store owners among others.

“As you can see, it is a combination of things where we are saying if these informal operators operate from a known address let’s say it’s a huge warehouse and we have seen those businesses around the city.

“So we designate the owner of the building as a tax collection agent and then we have put in place a presumptive tax to say for each individual occupying space in a building please collect US$1 a day, that’s the tax. If you do not, you are mandated by the law,” he added.

The minister said there was also the location tax which he introduced about two years ago, as part of the multiplicity of strategies to try and get to the informal sector.

“It is never easy, someone will always escape. As the Government, we are not concerned about the person who is trying to survive and they are selling something around the corner they are just trying to survive. l do not expect taxes from those individuals frankly, we are looking at the more serious informalised businesses that is where we should be focusing and that is what we are trying to do as the Government,” he said. – Sunday News