Forex sit­u­a­tion cause for con­cern

The Herald (Zimbabwe) - - Opinion & Analysis - Vic­to­ria Ruzvidzo In Fo­cus

But we need to as­cer­tain, at the out­set, where the for­eign cur­rency deal­ers get their funds from? Their source never runs dry ap­par­ently. They have the for­eign cur­rency and the bond notes in their num­bers.

THERE has been grow­ing de­bate on whether the econ­omy is re­ced­ing to 2008 lev­els where the lo­cal cur­rency was los­ing value every mi­cro-sec­ond, while for­eign cur­rency was largely avail­able on the black mar­ket at a premium, or whether what the coun­try is ex­pe­ri­enc­ing presently is a tem­po­rary wave that will dis­si­pate within the next few days or weeks?

Has the in­suf­fi­cient sup­plies of fuel and other es­sen­tials come back to haunt us? Are ris­ing prices an is­sue of mere profiteering, or are they a re­flec­tion of the chal­lenges on the mar­ket?

Of course the answers to these ques­tions are not read­ily avail­able and it re­mains a sub­ject of de­bate with op­ti­mists and pes­simists alike giv­ing their sum­ma­tions from their re­spec­tive point of view.

Car deal­ers and other providers of goods and ser­vices are now giv­ing 24-hour quo­ta­tions as prices fluc­tu­ate on a daily ba­sis. Of course it has not reached pro­por­tions where money was los­ing a lot of value be­tween the time you punched your PIN and when the notes were dis­pensed from the other end of the Au­to­mated Teller Machines. But present cir­cum­stances do send tremors in the mar­ket.

We have noted quite a sub­stan­tial amount of en­ergy, wis­dom and re­sources be­ing di­rected to­wards the is­sue, which es­sen­tially em­anates from the pre­car­i­ous for­eign cur­rency po­si­tion that this coun­try finds it­self in.

The black mar­ket once again seems to be rul­ing the roost. Ex­pe­ri­ence shows that not much will be solved by gap­ing, ex­cla­ma­tions, or any form of ex­press­ing shock and dis­dain.

What is re­quired is quick ac­tion to put a stop to the men­ace. A proper di­ag­no­sis of the sit­u­a­tion is a pre-req­ui­site.

Should the po­lice en­gage in run­ning bat­tles with il­le­gal for­eign cur­rency deal­ers, or should the cen­tral bank tighten fur­ther its ex­change con­trol reg­u­la­tions and bank­ing sys­tems to re­duce leak­ages that ap­pear to be feed­ing the il­le­gal cur­rency mar­ket.

But we need to as­cer­tain, at the out­set, where the for­eign cur­rency deal­ers get their funds from? Their source never runs dry ap­par­ently. They have the for­eign cur­rency and the bond notes in their num­bers. They flash these in their thou­sands by the road­side and we won­der if that’s the elu­sive green­back giv­ing mone­tary and fis­cal au­thor­i­ties’ sleep­less nights.

They are sweat­ing for funds to pay for elec­tric­ity, pur­chase fuel, buy hos­pi­tal drugs, fac­tory ma­chin­ery and many such de­mands on their pri­or­ity list. The back­log for funds is huge, but that sounds like for­eign lan­guage to the black mar­ket that al­ways has more than enough to meet de­mand al­beit at a premium.

Re­ports and in­ves­ti­ga­tions in some quar­ters have re­vealed that the ma­jor source that fu­els the black mar­ket is the bank­ing sec­tor, which re­leases the for­eign cur­rency through the back door. We are not privy to how this is done, but a few weeks ago the Her­ald Busi­ness car­ried a story in which a se­nior bank of­fi­cial was caught red-handed as she tried to make deals with a sub­stan­tial amount of funds. We heard that this was just a tip of the ice­berg, with many such un­der­hand deals be­ing a daily oc­cur­rence in the bank­ing sec­tor.

Does this sce­nario fully ex­plain why you find any amount of US dol­lars, or rand any time of day on the black mar­ket, or there could be more than meets the eye.

Of course we are aware that the cen­tral bank is com­pe­tent to han­dle such is­sues and we hope they are up to speed on this one and will plug the chan­nel that con­tin­ues to feed the black mar­ket with de­bil­i­tat­ing con­se­quences to the econ­omy.

Re­sul­tant price hikes and short­ages do a lot of harm to the econ­omy. We have al­ready be­gun to see the signs and it’s not ex­cit­ing.

Re­ports have been made that at least US$7 bil­lion is in cir­cu­la­tion in the in­for­mal mar­ket. But is this re­ally the case? If so, what can be done to en­sure such funds are chan­nelled into the for­mal sec­tor to ben­e­fit the econ­omy fully? Not that the in­for­mal mar­ket is not play­ing its part, but au­thor­i­ties need the funds to fa­cil­i­tate pur­chase of such es­sen­tials as hos­pi­tal drugs, elec­tric­ity, fuel, raw ma­te­ri­als and other such to give im­pe­tus to the econ­omy.

So many as­pects and facets of our liveli­hood are af­fected by the scarcity of for­eign cur­rency. We are not even talking about the lo­cal bond notes that have also been in short sup­ply.

It is crit­i­cal that ef­fort be di­rected to­wards sta­bil­is­ing the sit­u­a­tion be­fore ev­ery­thing gets out of hand. We can­not af­ford to ex­pe­ri­ence chal­lenges sim­i­lar to those of the 2007-2008 era. The econ­omy is too sen­si­tive to such a sce­nario.

There­fore, in­stead of fu­elling the black mar­ket for self­ish rea­sons, some in the bank­ing sec­tor and oth­ers else­where within and with­out the con­fines of our bor­ders, need to act re­spon­si­bly and work to­wards find­ing last­ing so­lu­tions to the cur­rent sit­u­a­tion.

Gains from il­licit deals are tem­po­rary, whereas re­build­ing the econ­omy en­sures im­proved life­styles and sus­tain­able growth and de­vel­op­ment not only for our­selves, but for pos­ter­ity.

It is against this back­ground that the $600 mil­lion nos­tro sta­bil­i­sa­tion fa­cil­ity from the African Ex­port Im­port Bank se­cured by RBZ Gover­nor Dr John Man­gudya and his team as re­ported in our sis­ter pa­per the Busi­ness Weekly to­day.

We un­der­stand the fa­cil­ity, which is part of strate­gies be­ing in­tro­duced to sta­bilise the econ­omy, will be availed by the end of this week. This brings hope that things will be well again. The funds are ex­pected to al­le­vi­ate de­lays in pro­cess­ing for­eign pay­ments for pro­duc­tive im­ports.

A num­ber of com­pa­nies have been mourn­ing the short­age of for­eign cur­rency to im­port raw ma­te­ri­als and ma­chin­ery, hence the fa­cil­ity is ex­pected to in­ject life into the firms.

The cen­tral bank will need to mon­i­tor its use strin­gently to en­sure it is not abused. Some firms have a ten­dency of mis­al­lo­cat­ing availed re­sources, com­pro­mis­ing the in­tended ef­fect on the econ­omy.

“We usu­ally ex­pe­ri­ence a huge for­eign cur­rency in­flow gap af­ter the end of to­bacco sell­ing sea­son, so we have availed this fa­cil­ity to en­sure that we have enough for­eign cur­rency to see us through from this time up to March next year,” said Dr Man­gudya.

Other mea­sures such as more in­cen­tives for Di­as­pora re­mit­tances and the an­tic­i­pated in­jec­tion of $300 mil­lion worth of bond notes into the econ­omy are ex­pected to yield pos­i­tive re­sults.

The RBZ in­creased the Di­as­pora Re­mit­tances In­cen­tive (DRIS) for funds re­ceived through bank­ing, or wal­let ac­counts to 10 per­cent from 3 per­cent, from last month Au­gust to en­hance fi­nan­cial in­clu­sion for re­mit­tances re­cip­i­ents.

The move is ex­pected to en­cour­age Di­as­pora re­mit­tances to come through for­mal chan­nels as in­for­mal re­mit­tances were still high.

These re­mit­tances are a huge source of for­eign cur­rency for many economies such as In­dia, Bangladesh, Ethiopia and Kenya among oth­ers.

Zim­babwe recorded for­eign cur­rency re­ceipts of $2,96 bil­lion in the first six months of the year. This is in­ad­e­quate to meet de­mand.

Dr Man­gudya has stressed the need to pro­duce more for ex­ports so ame­lio­rate the sit­u­a­tion.

We ap­plaud Dr Man­gudya for go­ing all out to en­sure eco­nomic sta­bil­ity, but it’s not a one-man, or one-in­sti­tu­tion job. We all need to pull to­gether and fend off cur­rent chal­lenges.

This econ­omy is too blessed to ex­pe­ri­ence some of these chal­lenges. We have most of what it takes to achieve real growth.

In God we trust!

Re­mit­tances are a huge source of for­eign cur­rency for many economies such as In­dia, Bangladesh, Ethiopia and Kenya

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