Budget: Govt needs to promote Zimdollar use

Prof. Mthuli Ncube

Finance and Economic Development Minister Professor Mthuli Ncube, is today expected to present the 2020 Mid-Term Budget Review that economic players say should focus on measures that create an appetite for the Zimbabwe dollar, a move that will stabilise the exchange rate, economic agents have said.

The Reserve Bank of Zimbabwe has been running foreign currency auctions for the past four weeks with the local unit settling at $68,8 to US$1 during Tuesday’s sale.

The 2020 mid-term budget review statement is coming at a time the economy is facing headwinds on several fronts with the Covid-19 pandemic coupled with a sharp fall in exchange rate, and a spike in inflation making the 2020 National Budget Statement presented in November last year academic.

While nothing much can be done to the economic damage caused by the coronavirus-related effects such as halting production for some economic players, the Government is still in a position to work on other areas with the exchange rate stability a paramount focus area.

Achieving a stable exchange rate, will go a long way in curbing and even subduing the runaway inflation which reached 31,66 percent month-on-month for the month of June. Year-on-year inflation now stands at 737,26 percent. 

The country’s inflation has largely mirrored the fall in the exchange rate now at $68,8 to the greenback. Before June 23, the exchange rate was pegged at $25 to the US dollar but is now being determined through an auction trading system.

Stabilising the exchange rate can be done by putting in place measures that encourage the use of the Zimbabwe dollar and Government must show the way as a measure of building confidence.

Government related fees, levies, duties among others should be paid in the Zimbabwe dollar as this will not only send the right signal, but will also make foreign currency holders liquidate their holdings to other economic players through the auction system.

A stable Zimbabwe dollar will kill domestic demand for US dollars for hedging purposes resulting in the correct valuation of the local currency, which is currently muddied by the demand for value preservation.

The Mid-Term Budget Review should address the issue of the currency ambiguity and confidence, according to CZI chief executive officer Sekai Kuvarika.

She said its time the Government, through the Mid-Term Budget Review, indicate that the country is moving towards de-dollarisation.

This can be done by charging duties and taxes in Zimbabwe dollars, she said.

“We need to be uncompromising about achieving stabilisation through resolving the currency issue once and for all, it has stalked all economic recovery efforts for far too long,” Kuvarika said.

Kuvarika’s comments come at a time most economic players in the country seem to be shunning the use of the local currency in favour of the green back.

This has been made possible by Government’s decision to allow economic players to use dual pricing for goods and services.

But most prices in local currency are set at ridiculously high prices meant to dissuade consumers from transacting in local currency. Most businesses have also not complied with the display of “dual prices” directive.

Economic analyst Persistence Gwanyanya, said Government must continue to exercise fiscal restraint as a supportive measure to the auction system determined exchange rate.

“It’s comforting that we are actually experiencing a decline in monetary base, which is attributable to fiscal restraint and we hope and pray this traction will continue,” he said.

Gwanyanya added that the minister should strike a critical balance between the current austerity measures to deal with the fiscal disequilibrium and need to stimulate the economy to defend jobs and possible economic contraction from the effects of Covid-19 pandemic.

“In this connection, we expect Treasury to spell out a non-inflationary funding source for the $18 billion stimulus package, which it has already announced. Unlike with previous facilities such as DIMAF, there is need for a well-structured facility, which incentivises the private sector (banking sector) participation as well as uptake by deserving candidates.

Gwanyanya also expects roll back on blanket subsidies in favour of targeted subsidies to manage the destabilising effects of the former at a time when achievement of price and exchange rate stability is a key priority of the economy.