Oliver Kazunga, Senior Business Reporter
THE Confederation of Zimbabwe Industries (CZI) has proposed that the total amount of weekly foreign currency allocation be temporarily reduced to US$25 million over the next three weeks to allow for backlog clearance.
In June 2020, the Reserve Bank of Zimbabwe (RBZ) introduced the weekly Foreign Exchange Auction Trading System with the objective of improving accessibility to forex by the productive sector.
However, the weekly forex allocation under the auction platform has been averaging US$40 million while the cumulative backlog was said to be around US$200 million in August this year before Treasury released an additional US$70 million last month to reduce the gap.
Recently, RBZ indicated that over 4 000 companies have received US$1,7 billion at the Main Auction, while US$233 million has also been accessed at the Small to Medium Enterprises auction since its inception.
In its position paper titled, “The Currency Situation and Recommendations for Urgent Action,” released this week, the industrial representative body said: “It must be acknowledged that we are pleased with the willingness of the authorities to engage seriously with CZI and other business member organisations in order to find a solution to the rapidly deteriorating exchange rate situation.”
CZI acknowledged that the economy is clearly in recovery, many businesses are recording growth and initiating expansion projects as noted in its quarterly surveys.
“However, the economy is also experiencing ‘growing pains’.
“We recommend the following additional measures: temporary reduction of the total amount to be allocated at the auction market to about $25 million or less over the next three weeks while clearing the auction backlog; adopt a first in first out (FIFO) method in clearing the backlog.”
In the interest of fairness, CZI further recommended that those bids that have been waiting in the queue for longer should be settled first before new bids as a way of enhancing confidence among all the players in the market.
Furthermore, the industrial representative body recommended that the Reserve Bank should communicate the amount available for auction beforehand, at least 24 hours before auctioning starts.
It also recommended that winning bids should be settled within 48 to72 hours.
“This will not be difficult once the auction is based on the declared available amounts.
“Further tightening of monetary policy – the RBZ has already indicated that monetary policy will be further tightened and this is a vital additional measure to support the other measures that the RBZ has committed to taking,” said CZI.
Added the industrial lobby: “In particular we recommend the broadening of the monetary targeting framework activity, which is now threatened by the unfolding instability in the currency market.”
Meanwhile, RBZ said a number of agreements were thrashed out during a meeting it held on Monday together with members of the business sector.
The meeting focused on addressing the unjustified spiral of blackmarket exchange rates which saw businesses in the formal market benchmarking prices of products using parallel market rates.
Last week, the exchange rate in the parallel market was pegged at US$1: ZWL$180 compared to margins between ZWL$150 and ZWL$160 three weeks ago.
As a result, some retailers and businesses in the formal market were pegging their prices above the official rate of US$1: ZWL$88,55 as of last week.
CZI noted that the clamping down on informal foreign exchange trading in the absence of a viable formal market will have catastrophic consequences for the economy.
The industrial representative body said what has facilitated the economic rebound was access to foreign exchange for the productive sector via official channels.
RBZ Governor Dr John Mangudya said all parties, after the meeting, underscored the need to maintain the stable macro-economic momentum the country has been enjoying in the last 12 months based on economic fundamentals.
Such positives have been achieved on the back of balanced budgeting, control of money supply, total foreign currency inflows exceeding outflows and the auction system, which has been used to set the exchange rate. – @okazunga