SI127 of 2021 from a social, economic justice perspective

ON May 27, 2021, government published Statutory Instrument 127 of 2021 (SI 127 of 2021) which sets out the offences (referred to as civil infringements) and penalties associated with the infringement of the Exchange Control Act [Chapter 22:05].

The SI comes against the background of runaway parallel market foreign exchange rates of around US$1:$120 against the average weighted official exchange rate of US$1:$84,7259 as at May 26, 2021.

Below is a summary of some of the foreign exchange offences set out in the SI:

Sell of goods at an exchange rate above the stipulated official exchange rate. It is now illegal for businesses to sell, display or offer goods and services at rates above the official exchange rate.

Offering discounts for payments in foreign currency to encourage payments in local currency is prohibited.

This means that no business is allowed to sell goods or services at prices pegged on the parallel market rate price.

Selling goods and services exclusively in United States dollars. Service providers are prohibited from selling goods and services exclusively in foreign currency unless authorised by law.

This means that there are certain authorised businesses which are allowed to exclusively sell goods and services in foreign currency and the rest are compelled to accept all payments in the Zimbabwe dollar only.

Business operators are now prohibited from issuing receipts in Zimdollar for goods or services purchased in foreign currency.

Therefore, if a product or service has been purchased in foreign currency, the service provider should issue a receipt in the currency in which the purchase was made.

SI 127 of 2021 provides that financial institutions are liable for the mistakes or incorrectness of information submitted by their customers during an application for foreign currency.

In the event that the information is incorrect, the bank will be liable to pay a fixed penalty of $5 million.

Recommendations

Government should come up with a flexible official foreign exchange rate that speaks to market realities.

There is need for government to consider pegging civil penalties depending on the size of business which would have infringed the provisions of SI 127 of 2021 rather than providing a blanket penalty charge of $50 000, which might not be deterrent enough for unscrupulous big businesses.

There is an urgent need for government to restore public confidence in the monetary policy regime to deal with speculation by both businesses and the general public.

Government should come up with mechanisms to weed out corruption in assessing applications from seeking authorisation for exclusive trading in foreign currency.