President Mnangagwa on Saturday unveiled a range of measures to defend the local currency.
The strategy was long-awaited, we must say, given the progressive decline in the value of the local unit in recent months and the adverse impact that has had on the economy and people’s well-being.
The measures are meant to boost the use of the Zimbabwe dollar while discouraging the use of the US$.
As the local dollar continued to depreciate, inflation was ticking up, prices of goods and services were rising in sympathy and salaries and wages could not keep up the pace.
A decisive intervention had to be made and it was made on Saturday.
Among other measures, lending by banks to both Government and the private sector was suspended, while cash withdrawals for amounts above US$1 000 will now attract a two percent levy. The President ordered the Reserve
Bank of Zimbabwe to settle all foreign currency auction system allotments within 14 days and to auction off funds it can disburse so that business confidence in the system is enhanced.
Government, said the President, was with immediate effect putting in place a differential taxation system for the Intermediate Money Transfer Tax (IMTT). While local currency transfers will continue to attract a two percent IMMT tax, foreign currency transfers will be levied four percent.
The Financial Intelligence Unit of the central bank will heighten its monitoring of financial transactions. \
Individuals found to be engaging in activities that undermine the local currency will be punished, with efforts underway to tighten the law to provide for mandatory jail sentences for the culprits, he warned.
He said the economy is in relatively good health but is convinced that the recent exchange rate movements are being driven by negative sentiments by economic agents as opposed to economic fundamentals.
“Government is putting in place the following measures to restore macro-economic stability, boost confidence in the economy, increase the appeal of the local currency, preserve value for depositors and investors and deal with market indiscipline,” said the President.
“These measures are expected to restore macro-economic stability and support the current robust economic recovery trajectory.”
The current dual currency system, he said, will remain in place, but under a carefully managed de-dollarisation process.
“In order to minimise the creation of broad money that is prone to abuse for purposes of manipulating the exchange rate for financial gains, and to allow current investigations,” he added, “lending by banks to both the Government and the private sector is hereby suspended with immediate effect, until further notice.
The security agents of Government and the Financial Intelligence Unit shall, with immediate effect, enhance their roles to effectively monitor financial transactions in order to address the delinquent arbitrage behaviour in the economy.”
We are confident that the latest measures will, indeed, defend the local currency, promote its use and put those who are assaulting it on notice.
That the central bank was ordered to clear the foreign currency backlog that has built up over some months is critical.
We regret that there is a possibility that some companies whose bids were successful at the auction but were not given their foreign currency allocations for long periods were forced to turn to the illegal market to source the money, thus increasing demand for hard currency. This must have contributed to the sharp increase in the rate on the alternative market, in turn pushing up local currency prices.
The central bank must therefore move with speed to clear the backlog so winning bidders don’t go to the streets for their hard currency requirements.
Also since banks have been ordered to stop releasing loans, we will not see much cash on that market that the unscrupulous have been using to speculate, damaging the local currency.
But, the unscrupulous have had it their way for too long, knowing that sanctions against them for misbehaving weren’t that heavy. Soon, they will be.
All these measures taken together and also the fact that fundamentals have already been sound, must get the local currency stronger resulting in greater economic stability.