The Confederation of Zimbabwe Industries (CZI) wants Finance and Economic Development Minister Mthuli Ncube to ensure his 2020 mid-term budget review presented yesterday afternoon, gives clear policy direction on issues of currency ambiguity and sustainable access to forex.
In a commentary ahead of yesterday’s presentation of the Mid term budget, Zimbabwe’s largest manufacturing sector business member group said the policy review should focus on sustainable access to forex, resolving mixed signals on currency, measures to rein in inflation and support production.
CZI said the economic crisis in Zimbabwe had been worsened by the outbreak of the Covid-19 global pandemic that has shuttered global economies, wiped out millions of jobs, increased incidence of poverty, infected millions and killed hundreds of thousands.
Before the coronavirus broke out and started weighing down on the global economy, which as a result is now projected to register negative growth from the 3 percent expansion that had been forecast earlier, Zimbabwe was already buckling under the weight of drought and devastating cyclones Idai and Kenneth.
Minister Mthuli had thus, after drought and impact of the cyclones in 2018, which damaged infrastructure, houses and killed scores mainly in parts of Manicaland Province, projected that the economy would rebound from a 6,5 percent decline to post a growth of 3 percent this year.
Against this background, CZI said the latitude for firms to continue as going concerns has been greatly inhibited and this urgently called for high levels of innovation at the corporate and policy levels.
Already, CZI said, current threats included high inflation, low production and productivity, disruption of source and destination markets, low demand and reduced revenues.
“2020 mid term budget must be innovative in proffering solutions to currency ambiguities, arresting inflation to address demand issues, sustainable forex availability to productive sector, giving more support to firms and saving jobs,” CZI said.
Zimbabwe is facing high inflation, which hit 785,6 percent in May and expected to be higher for last month, largely due to the effects of exchange rate movement, as the local currency has lost significant ground against the US dollar since being floated after its reintroduction in exactly a decade early last year.
All this is happening when the country is already facing very low industrial production following a decade of meltdown, with industrial capacity utilisation averaging only 37 percent last year and anticipated to drop farther down this year.
Western sanctions and blocked access to external lines of credit have made efforts to stabilise and rebuild the economy a cumbersome if not impossible task, resulting in authorities taking decision that appear to send mixed signals.
For instance, the market has demanded that authorities give clear signals about direction on currency in the wake of increasing preference by market players to use US dollars and Government’s decision to pay its workers in hard currency after embarking on a process to de-dollarise the economy.
The central bank has since, amid the exponential prices and inflation increase, which have tracked the depreciation of the Zimbabwe dollar, especially on the open market that makes over half of the economy, allowed businesses to charge in US dollars, although insisting de-dollarisation is proceeding.
Zimbabwe had used the multicurrency regime, which was dominated by the US dollar since February 2009 until 2018, having scrapped its domestic currency due to the ravaging impact of hyperinflation, which reached 231 million percent at the last official count in July 2008.
As part of efforts to restore macro-economic stability, the Reserve Bank of Zimbabwe dumped the interbank forex market and the fixed rate temporarily adopted in March after the coronavirus outbreak and introduced an auction system.
The first three auctions have been a huge success with significant resources being allocated mainly to the productive sector at market determined rates while the weighted average of bids has been used to set a market exchange rate to guide pricing.
However, limitations of the auction have included the fact that the system has continued to shut out some businesses through stringent conditions for participation including high threshold of minimum bids accepted on the market and the profile of entities permitted to participate.
Government in May also unveiled an $18 billion economic stimulus and recovery package to provide critical liquidity support to productive sectors of the economy, protect employment by preventing and minimising Covid-19 induced layoffs and providing income support for vulnerable groups and individuals. – Business Weekly
