Furore over 25% export surrender funding
QUESTIONS have arisen as to how the government will fund the 25% surrender portion of export proceeds after announcing this past week it would assume this foreign debt.
Last Monday, to slow the growth of money supply which is causing the Zimbabwe dollar to lose value, treasury announced that exporters would now pay their 25% export proceeds surrender requirement to treasury and not the central bank.
This was followed by the announcement that all customs would now be payable in local currency, save for selected luxury items, and that all parastatal and government agencies will collect fees and levies in Zimbabwe dollars.
The idea was to create demand for local currency and use this increased local currency collections to pay exporters their 25% export surrender portion in Zimbabwe dollars.
However, as the local currency continues to lose value against the greenback and the surrender portion still requires a substantial amount of local currency to pay, questions on whether increased taxes will be adequate to pay the portion remain.
“Treasury has taken unprecedented steps to force exporters to pay directly surrender proceeds into its accounts in its statement, as one would, when they pay taxes, effectively fiscalising monetary matters. Treasury then claimed that it would settle the 25% surrender receipts with its own ZWL collections,” economic commentator Tinashe Murapata said on Twitter.
“Having witnessed contractors and wheat farmers delayed payments, the market wondered where treasury would get the money. Even today, the market is wondering where treasury will get the money to pay the “foreign debts” it has assumed. Despite the propaganda of retaining the Zimbabwe dollar, the tussle reveals what is most valuable is the American dollar.”
He said government contractors, civil servants and farmers were still demanding to be paid in US dollars for several reasons. These groups are tired of the government and Financial Intelligence Unit accusing them of overpricing and front running the forex market when there is no iota of truth in that.
“In all its facts and figures and being open to the market Zimra has never broken down how much it receives in US dollar and local currency. Conservative estimates point to 60% Zimbabwe dollars. The obvious tussle at the end of each month is treasury begging for US dollars to pay suppliers from RBZ. And RBZ coming with all excuses,” Murapata said.
“It has to pay interest payments to Afreximbank. In order of political priorities civil servants dollar payments rank higher than Afreximbank. And obviously treasury does not like asking from a subordinate organisation.”
He said all these challenges would go away if government allowed the market to allocate and price forex correctly.
“Exporters are being forced to twin or outrightly sell currency on the parallel market so that they remain viable. Keep in mind that exporters are facing a 12.5% tax on revenue with this surrender requirement. While other countries incentivize exports, Zimbabwe punishes them,” Murapata added.
Africa Economic Development Strategies executive director Gift Mugano also raised similar concerns.
In the past as has been the norm, treasury has often funded local debt with the issuance of debt instruments.
Raising taxes has often proved ineffective given that socioeconomic needs would rise in tandem.
Local financial services firm, IH Securities said in its analysis of treasury’s measures to prevent a complete slide into dollarisation, it was critical that the government showed conviction in the local currency by creating the demand for it.
“By allowing all customs duty to be payable in Zimbabwe dollars, we expect demand for the local currency to increase. Theoretically this should trigger private sector participation on the supply side of hard currency as companies sell to meet obligations,” IH Securities said.
“On the other hand, we might experience increased power supply disruptions as foreign currency inflows to Zesa are reduced. The treasury also limited weekly auction allotment to US$5 million so as to avoid build-up of a backlog.”
IH Securities said that while economic growth for the year was expected to increase by 3,8% owing to favourable commodity pricing, improved rainfall, and the continued use of forex, the country still faced an uphill battle.
“However, achieving this growth is going to be an uphill battle given the country is currently facing power shortages, inflation and depreciating local currency,” IH Securities said.