Currency crisis: State must free the market
RECENT weeks have seen the Reserve Bank of Zimbabwe fighting to contain a volatile currency headache. About 24 directors of big corporations face arrest for violating foreign exchange regulations and fuelling the parallel market rates.
The official foreign currency auction, launched in June last year, has pegged the exchange rate at US$1: ZW$90, while the parallel market rate is hovering around US$1:ZW$180.
In response to the rampaging crisis, the state has invoked Statutory Instrument 127 of 2021 which prohibits businesses from selling goods and services or quoting them at an exchange rate above the ruling auction market rate, issuing buyers with a Zimbabwean dollar receipt for payment received in foreign currency, giving buyers a discount for paying in foreign currency and setting out penalties for businesses that refuse to accept payment in the Zimbabwean dollar at the ruling auction market rate.
Some retail outlet bosses are being accused of selling goods at a rate of above US$1:ZW$184 — way above “the ruling exchange rate in Zimbabwe”.
Business has issued a statement against the arrests of executives, urging the government to address economic fundamentals that affect currency stability.
The Confederation of Zimbabwe Industries (CZI) argued that the arrest of directors of top firms will dent the relationship between government and business.
Industry is blaming the government for the currency volatility through policy inconsistencies while the state is aiming for alleged economic saboteurs. It’s a stalemate.
The heavy-handedness by the state will obviously not tame the high parallel forex rates. In fact, earlier this year, some economists warned that the rate will breach the US$1: ZW$200 by year-end. Market forces determine rates; it’s a basic rule of supply and demand.
Unfortunately, it is the ordinary worker who bears the brunt.
The cost of living has risen in stratospheric proportions as the Total Consumption Poverty Line (TCPL) for Zimbabwe stood at ZW$6 653,65 (US$75) per person in September 2021 from ZW$4 516,52 (US$51).
The RBZ has struggled to control the forex rates but this needs urgent redress to ensure price stability. It seems the official foreign currency auction system, like a plethora of other currency measures, is a monumental failure.
The state should allow the market to peg prices as controls by monetary authorities have an adverse effect on the prices of goods and services which are pegged at parallel market rates, thereby eating into workers’ already meagre salaries.
There is a need for the government to plug leakages which continue to bleed the economy as Zimbabwe is said to be losing over US$1 billion annually from the smuggling of precious minerals.
Corruption has to be dealt with at all levels.
Illicit financial flows continue to cost Zimbabweans between US$1,7 billion and US$1,9 billion yearly.
Zimbabweans have suffered for two decades; it's time the government found a lasting solution to ease economic problems.