CITIZENS are fretting over the sharp fall in value of the local currency on the black market and the adverse impact of that decline on prices.
The Z$:US$ rate on the illegal market was around Z$100:US$ some two months ago, but it has dramatically widened to about Z$180:US$ over the past week or two.
We see one main reason why this is so — the failure of the auction system to actually deposit foreign currency into businesses’ accounts. As a result, the payment backlog was at some point about US$150 million. Starved of hard currency from the legal source, the businesses are returning to the illegal market in a way they hadn’t since the Reserve Bank of Zimbabwe (RBZ) launched the auction system in June last year.
As demand for US$ is rising, the local currency has nosedived in value, triggering steep and frequent price increases in Z$ terms. Customers who have no access to foreign currency but only the Zimbabwe dollar are screaming.
They must, however, take comfort in the President’s assurance that the RBZ is hard at work working modalities to disburse foreign currency to companies whose bids were successful at the auction.
“Going forward, my Government will ensure that the platform is adequately resourced and that the relevant authorities enhance efficiencies within the system,” he said in his State of the Nation Address on Thursday.
Earlier, the RBZ had committed to clearing the foreign exchange allotment backlog within a month.
We urge the Government to speedily clear the backlog so that the companies turn their backs on the illegal market.
This will go a long way in squeezing life out of that market, stabilising the local currency and boosting the viability of businesses since they would now be spending less acquiring foreign exchange from the RBZ than the premiums they are paying on the street. If that happens, prices of various goods and services will stabilise. Citizens, who are justifiably fretting over their currency, will benefit through stable prices.
In the future, we want the RBZ to be more consistent in meeting its obligations to companies with successful bids on the auction.
But, given that there is an element of criminality in the way the local currency has been attacked lately, the Government is doing the right thing by not only exposing illegal currency dealers, but also sanctioning them.
In a statement on Thursday, Finance and Economic Development Minister Professor Mthuli Ncube said the Reserve Bank of Zimbabwe’s Financial Intelligence Unit (FIU) is identifying and prosecuting perpetrators of parallel market activities.
He said the Zimbabwe Revenue Authority will carry out impromptu audits of corporate activities with a view of quantifying the potential tax liabilities arising out of illegal foreign currency trading.
“Businesses which disregard the law and continue to price their goods on the parallel market rates will have their licence suspended. Members of the public are also strongly encouraged to report to the FIU and the National Economic Conduct Inspectorate, all business entities directly or indirectly benchmarking prices and parallel market exchange rates,” said Prof Ncube.
Criminals, whatever station they are at in society, must be severely punished so that they depart from their illegal, evil ways. This will be good for the economy.
But as criminals receive the punishment they courted, the RBZ must also expeditiously clear the allotment backlog.