Economy still on de-dollarisation path
RESERVE Bank of Zimbabwe (RBZ) governor Dr John Mangudya, insists there is no going back on the process of de-dollarising the economy despite the growing use of the US dollar in most transactions, more so in the informal sector.
Despite allowing some transactions to be in foreign currency, Government insists de-dollarisation is on course, although the market has seen increased use of the United States dollar.
A fortnight ago Government said everyone providing goods or services in Zimbabwe must now quote prices in both Zimbabwe dollars and US dollars, but using the standard exchange rate set each week as the weighted average in the Tuesday weekly foreign currency auctions.
The legal instrument giving effect to this was gazetted on July 24, 2020 by President Mnangagwa, as an addition to the Exchange Control (Exclusive Use of Zimbabwe Dollar for Domestic Transactions) Regulations.
Government’s stance comes after the Confederation of Zimbabwe Industries (CZI) said in a research note on June 2020 inflation that the market remained skeptical about the sustainability of the forex auction market given the lingering uncertainty over the currency direction.
The manufacturing industry lobby group is worried that redollarisation was taking root again in light of the fact the Government itself was also now paying its workers US dollar allowances while collecting some levies, taxes and fees in foreign currency.
CZI also noted widespread use of the US dollar for transactions in the informal sector, fuel sector, payment of wages and salaries by private sector, pricing by large supermarkets and provision of most private medical and educational services.
But Dr Mangudya said Zimbabwe was not relapsing into redollarisation given the bulk of transactions remained in local currency while an economy, technically, is considered dollarised if the volume of US dollar transactions exceeded 30 percent.
“The RBZ has no intention of changing current arrangements regarding free forex funds in the economy.
“Exceptions on the use of free funds in the economy, duty payments as well as some commodity purchases should not be construed as re-dollarisation,” he said.
Several businesses are reportedly offering to pay for goods and services in foreign currency, which might be a result of either tight monetary targeting by the central bank or wide spread charging of products in foreign currency.
As such, CZI suggested that the central and local Government should levy taxes and fees in local currency in order to create demand for the Zimbabwe dollar. It said tax revenue constituted 97 percent of total revenue to Treasury.
CZI said levying value added tax (VAT), pay as you earn (PAYE) and income taxes in local currency should go a long way in creating demand for the local currency as taxes contribute significantly to State revenue.
There is also belief from industry players that payment of Government services in local currency will force holders of the greenback to offload it on the foreign currency auction trading system.
The auction system, which has been in use for at least 7 times, has traded more than US$100 million, but the bulk of forex is coming from the central bank.
Exporters, whose forex holdings are estimated to be above US$1,1 billion continue to shun the market, opting instead to trade outside the system.
Some like mine houses are, however, calling on Government to allow them to pay for local expenses in the Zimbabwe dollar.
In a recent note to Government, the Chamber of Mines Zimbabwe appealed to be granted “an option for mining houses to pay local expenses such as electricity and taxes in local.”