Zimbabwe forex earnings inch closer to US$6 billion

Dr John Panonetsa Mangudya

HARARE – The economy has been resilient for much of the year, with key macroeconomic fundamentals reflecting strong performance in the January to November period despite the fallout from the coronavirus, Reserve Bank of Zimbabwe (RBZ) Governor Dr John Mangudya said on Thursday.

Going forward, he said, key focus areas will be fiscal stability and sustainability (balanced budget), monetary stability (stable exchange rate) and financial system stability (healthy banks that can support the economy).

Addressing a Zimbabwe Chamber of Commerce (ZNCC) half-day conference on Thursday, Dr Mangudya said key statistical indicators showed that the economy was now on a sound footing.

This year, the country has witnessed remarkable growth in export receipts and foreign currency cash and nostro holdings, Diaspora inflows and industrial output.

Inflation continues to decline, while the exchange has stabilised since the introduction of the Foreign Currency Auction System on June 23.

The Government, Dr Mangudya added, was moving in to entrench the prevailing stability.

“Money supply has been growing below what we had targeted. Our target is 25 percent on a quarter-by-quarter basis. If you look at November, we had targeted $25 billion and we are at $17 billion, which is below the target.

“The growth of money supply in Zimbabwe is contained. By this time last year, it had too much money in the economy. This time, the amount of money is not too much so as to cause (rapid) inflation; it is just enough for us to continue to survive,” he said.

Following the introduction of the auction system, the spread between the highest and lowest bid rates had narrowed to between US$1/$80 and US$1/90.

The gap between the ruling auction rate and the parallel market rates has also narrowed.

Much of the stability can be attributed to a cocktail of measures governing use of free funds, including controls around thresholds for mobile money transactions.

“If you check from Auction 11 and auction 19, the exchange rate has been stable — that is what brings stability.”

Most of the funds allotted to importers, he said, went to raw materials, capital equipment, consumables and some products like maize and wheat to cover deficits caused by drought.

Over the 11 months to November 2020, Dr Mangudya said the economy had generated US$5,8 billion compared to US$4,9 billion over the same period in 2019, despite the negative impact of Covid-19, which affected local business activity, particularly during the lockdown period.

“Despite the negative effect of Covid-19, this economy has been resilient and we want to thank the business community for continuously working hard for this economy,” Dr Mangudya said.

Exports rose by 9 percent to US$3,7 billion during the period from US$3,3 billion a year ago.

Diaspora remittances went up 17 percent on a year-on-year basis and this helped provide the liquidity required to sustain the foreign currency auction market.

“Manufacturing has done wonders in 2020, a growth of 26,7 percent, that is not a small achievement,” he said.

But sectors such as mining, services and agriculture declined.

Overall, the country used US$1 billion to buy consumptive goods such as maize and wheat to cover shortfalls caused by drought.

The global figure used for exports topped US$4 billion.

Dr Mangudya said: “We spent US$4 billion after having earned US$5,8 billion. It means that our nostro position increased, because you now say income minus earnings, gives you what you are holding, so these are the numbers.”

The country’s foreign currency position has improved from US$130 million in 2009 to US$1,1 billion in 2020.

“As at end of November 2020, banks held US$466 million as an aggregate amount of money (foreign currency) in the banking system in Zimbabwe. Who is the owner of this money? It is the private sector, Government and individuals . . . This amount excludes what I hear people call local US dollars,” he said.

The funds will remain in banks to liquefy the economy.

Monetary authorities expect annual inflation, which started the year at 473 percent and reached a peak of 763 percent, to end 2021 at single-digit level. – Sunday Mail