The Government will ensure that the foreign currency auction system is adequately resourced and that the relevant authorities enhance efficiencies within the system, President Mngangwa has said.
Speaking during a State of the Nation (SONA) address in Parliament yesterday, President Mnagagwa pointed out that the financial sector is stable with the foreign currency auction performing well and accessed by both large and small to medium size businesses.
However, in a tacit admission that the auction is not as it should be, President Mnangagwa said there is need to enhance efficiencies within the system.
“Going forward my Government will ensure that the platform is adequately resourced and that the relevant authorities enhance efficiencies within the system.”
His comments come as the auction has been found wanting with inadequate resources.
Failure to meet demand has resulted in a growing backlog stretching over 15 weeks in some instances. The backlog is reportedly as high as US$150 million.
The lag in supply has become a driver of the widening parallel market premium, which is now more than 100 percent the official exchange rate.
According to industry representative body the Confederation of Zimbabwe Industries, said with this widening premium arbitrage, distortions and inflation pressures are entrenching.
“This has also increased preference for the USD among economic agents making the ZWL$ vulnerable and the inflation environment precarious,” reads part of CZI’s briefing to its members seen by this publication.
Some suppliers are already demanding US dollar payments only, while others are prioritising US dollar denominated orders at the expense of locally denominated orders according to industry players.
In September, inflation showed signs of creeping up after increasing by 51.55 percent from 50.24 percent in August 2021.
Furthermore, the month-on-month inflation rate in September was at 4.73 percent, representing an increase of 0.55 percent from the August 2021 rate of 4.18 percent.
The Reserve Bank of Zimbabwe now expects the annual inflation rate to end the year between 35 percent and 53 percent, up from an earlier estimate of 25 percent to 35 percent.
To improve efficiencies on the auction system, it has to revert to a true Dutch auction system according to CZI.
“The solution is to ensure that the foreign currency auction operates as a proper Dutch auction, where those bidding low have a risk of not getting foreign currency.”
This can be done through auctioning foreign exchange “in line with a conservative estimate of available funds to ensure that no further arrears are accumulated,” only.
Authorities are, however, taking a different stance, choosing instead to identifying and prosecuting perpetrators of parallel market activities.
In addition to what the central bank is doing, Treasury has also said it will get 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.
“Business who disregard the law and continue to price their goods on the parallel market will have their licences suspended,” reads the statement by Finance and Economic Development Minister Mthuli Ncube.
Walter Mandeya, a market analyst with Trigrams Investments, said Minister Mthuli might have just made one of the most profound policy announcement of his tenure as by threatening professional licences of individuals found to be complicit in parallel market activities.
Treasury’s move, according to Mandeya, could result in further informalisation and dollarisation of the economy.
“Sanity in Zimbabwe’s economy will only happen sustainably when stakeholder interests align for the benefit of the country or put differently not compete against the country’s interests,” said Mandeya.
Market watcher Alfred Mthimkhulu said
“Except when telling us about the good things that have been achieved so far such an improving trade balance, the language of both RBZ and Treasury is, as now standard, strong and threatening”.
“This points to force being perhaps the remaining strategy to try and stabilise the national currency. But force and litigations don’t work in these matters.
“Fundamentals must be sorted aggressively and the fundamentals include exponentially increasing our exports. There is need to dangle carrots to businesses and people who are working hard and doing so honestly, more so if such are exporting.”