Forex situation cause for concern
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!