Old Mutual implores govt to sustain stability, growth

17 Sep, 2021 - 00:09 0 Views
Old Mutual implores govt to sustain stability, growth Old Mutual

eBusiness Weekly

Business Writer

OLD Mutual Investment Group (OMIGZIM) has said the government should continue implementing measures that build foreign reserves, improve confidence and exports in order to achieve sustained stability and growth.

This comes as the economy has endured a sustained stable environment in recent months, despite the year having started off on a difficult terrain with inflation running on three digit levels and a volatile parallel market exchange rate that was used as a reference point in the pricing mechanism.

The economy is expected to grow by at least 7,8 percent this year, compared to the previously projected 7,4 percent while inflation is targeted at a two digit figure by end of this year.

OMIGZIM in its monthly economic brief said the allocation of US$961 million worth of Special Drawing Rights (SDRs) from the International Monetary Fund (IMF) should provide additional liquidity to the economy and supplement foreign reserves.

“The authorities need to continue implementing measures to build foreign reserves, improve confidence and exports, and reduce external debt levels for sustained stability and growth,” reads part of the report.

According to the Finance and Economic Development Minister, Professor Mthuli Ncube, Treasury will set aside close to fifty percent of the SDRs as reserves to support the local currency while the remaining balance is expected to be deployed towards the purchase of vaccines, equipping of hospitals, and construction of schools, road rehabilitation and other infrastructure projects.

There are also plans to set up a revolving Fund to avail funding to the productive sectors of the economy such as the manufacturing, agriculture, and mining sectors.

Over the years, the economy has been facing serious foreign currency shortages partly resulting from subdued exports.

In response, the Reserve Bank of Zimbabwe (RBZ) introduced weekly foreign currency auctions to improve access to US dollars.

The OMIGZIM report noted that there is scope for the authorities to utilise a portion of the SDRs to clear the backlog.

“However, the use of SDRs to fund the backlog is unlikely to be a sustained solution to the funding constraints on the auction and economy at large,” reads part of the report.

It noted that the foreign currency settlement backlog on the auction system is reportedly US$175 million or about two months based on average weekly allocations.  The auction system is designed to operate on a T+3 settlement cycle, where winning bids are settled from the third day after allotment, while local currency funding is availed within a fortnight from the date of allotment.

According to OMIGZIM, the settlement delays have ostensibly increased demand for foreign currency on the parallel market where the exchange rate premium is reportedly above 40 percent, resulting in pressure on the local currency and inflation.

The report noted that the SDRs allocation and the positive rainfall forecast are anticipated to have a positive impact on the economy.

The Southern African Regional Climate Outlook Forum held towards the end of August 2021, is forecasting normal to above normal rainfall for the 2021/22 cropping season over most parts of the SADC region.

This positive climate outlook is attributed to an expected La Nina episode during the coming rain season. La Nina conditions are triggered by the cooling of temperatures in the Pacific Ocean and are usually associated with heavy rains and flooding in southern Africa.

In the 2020/21 season, the country received normal to above normal rainfall which resulted in a record output for most crops.

Agriculture production for the 2021/22 season is expected at the same level or above last year’s output on projected good rainfall.

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