HARARE – The Zimbabwean dollar is now in real peril, and well-considered policy measures must be implemented urgently to bring back confidence in the currency markets, industry representative body the Confederation of Zimbabwe Industries (CZI) has said.
Zimbabwe uses a foreign currency auction system, administered by the central bank every Tuesday, to determine the exchange rate. However, CZI believes the Reserve Bank of Zimbabwe has not adhered to what was agreed on in putting up the Dutch foreign currency auction system, with knock-on effects.
“In truth we find ourselves in a situation that could and should have been avoided had the appropriate policy prescriptions been in place,” it said. “After starting well, the Dutch foreign auction has now been distorted by a lagging supply stretching over 15 weeks in some instances and this has become a driver of the widening parallel market premium,” according to CZI.
While the Zimbabwe dollar is trading at Z$88.66:US$1 on the official foreign currency auctions system, it has depreciated to Z$175:US$1 on the widely used parallel market. In its latest update to its members, CZI said the rapid depreciation of the Zimbabwe dollar on the parallel market was a result of the inefficiencies or non-adherence to strict Dutch auction rules by the central bank.
“The auction was set up as a price discovery and transitional mechanism and now it has morphed into a source of sub-optimally priced foreign currency,” reads part of CZI’s briefing to members. “It is now profitable to import products rather than producing and sourcing locally due to the exchange rate distortions that have emerged from the auction market.” CZI lamented what it called a heavy-handed response by authorities after Treasury said it would get tax agency the Zimbabwe Revenue Authority to carry out impromptu audits of corporate activities.
Regulatory bodies including the Public Accounts and Auditors Board will also be working on a framework to impose “appropriate financial and professional sanctions on members” who may be complicit in superintending over illicit affairs by corporate entities which they are charged with running, according to a statement by Finance and Economic Development Minister Mthuli Ncube. “Businesses who disregard the law and continue to price their goods on the parallel market will have their licences suspended,” it added. CZI, however, believes government has taken the wrong approach in handling the situation.