90 percent of Zimbabwean foreign currency now in formal market

Finance and Economic Development Minister Professor Mthuli Ncube

ABOUT 90 percent of the country’s foreign currency is now circulating in the formal market thereby stabilising the exchange rate and stimulating economic growth, Finance and Economic Development Minister Professor Mthuli Ncube has said.

The Sunday Mail has gathered that foreign currency deposits in nostro accounts now sit at about US$1,2 billion while local currency deposits are at ZWL$80 billion.

As a result, the parallel market, which has in the past hamstrung the economy, has been subdued due to growing confidence in the local currency, which is now in demand.

In an interview with The Sunday Mail on Friday, Prof Ncube said the introduction of the Reserve Bank of Zimbabwe (RBZ) foreign exchange auction system had brought sanity to the money market with most companies now accessing forex on the platform.

He said the Government’s decision to allow fuel dealers and selected service providers with free funds to charge in US dollars had helped channel much of the foreign currency which was in the informal sector into the formal sector.

“The bulk of the foreign currency in Zimbabwe is now available in the official market, easily 90 percent is in the official market and that’s very good,” the Treasury chief said.

“We have made a lot of progress and we believe things are going the right way and that is why we are now even able to focus on developmental projects because we feel confident that in the macro space things are fairly stable. Prices are generally stable if you compare where we are now and where we were a year ago. The first order of business for us as policymakers in the macro space is price stability and exchange rate stability.”

Prof Ncube said he was confident that the country would achieve significant economic growth given the substantial strides made by key sectors of the economy — mining and agriculture.

“Things are stable and we are very pleased with that. Companies are able to plan, citizens are able to save and the Zimbabwe dollar now retains value and that is what is important because stability is paramount,” he said.

“I don’t recall Government finances being strong in a long while. This year will be even better, we have had a very good agricultural season.

“The mining sector is strong and we will do more to support the mining sector so that companies can access loans and other financial facilities from abroad, so we will do more to support that.”

Prof Ncube said the Government was working to contain the continued marginal increases in the price of fuel as they are worried that this could trigger inflation.

“The issue of changes in fuel prices has to do with the global oil price. The thing is that with the vaccination programme (for Covid-19) in most countries, there has been increased demand for oil, so demand and reopening of most economies has pushed oil prices up and it filters into countries that are net importers of oil such as us.”

He said Government has performed extremely well in vaccine procurement with the private sector now allowed to acquire its own doses.

“The Government is working well with the private sector, we are the sole procurer of vaccines and we have agreed that the private sector will receive some of the vaccines but these vaccines must be supplied to the employees who must be jabbed for free.”

Economist Mr Eddie Cross said the increase in circulation of foreign currency is an impetus for economic growth.

“I think the principal benefit of having so much forex flowing into the formal sector is that it has stabilised the exchange rate and slowed down inflation,” he said.

“But it is also a stimulus for growth. If you look at the RBZ weekly forex allocations, you will find that much of the money is for machinery and raw materials. Going forward things can only improve, we finally have a system that works and it is at the heart of Zimbabwe’s economy.”

Economist and member of the Reserve Bank of Zimbabwe Monetary Policy Committee Mr Persistence Gwanyanya said:

“Deposits currently amount to $80 billion in terms of local currency and the nostro deposits are at $1, 2 billion. So you see there has been a big improvement if you compare with previous years.”

The RBZ foreign exchange auction system has produced positive results since its introduction in June last year, reducing annual inflation to 194 percent in April this year from 837 percent in July last year.

Government predicts that the economy will finish the year stronger with inflation estimated at 15 percent, while the economy will grow by 7, 4 percent. – Sunday Mail

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