The Reserve Bank of Zimbabwe will this year focus on monitoring the use of foreign currency that importers are accessing from the auction system amid suspicion that not all of it is being used for intended purposes.
Since inception on June 26 last year, importers have accessed more than US$400 million from the auction system, but speculation has arisen that some firms were diverting the money to other purposes.
The bulk of these funds, averaging above 40 percent of total allotted funds has been to importers of raw materials.
Roughly 14 percent has been allotted to importers of machinery and equipment while a slightly lesser amount has been allotted to importers of food and beverages among other retail products.
However, despite improved access to foreign currency at the official exchange rate, the pricing regime in the economy is largely using parallel market exchange rates and in the process pushing up inflation.
Significant price increases were recorded in December 2020 with the month-on-month inflation rate gaining 1,07 percentage points on the November 2020 rate of 3,15 percent to close at 4,22 percent.
The central bank is, however, not amused and has indicated that it’s time for the importers to account for what they are accessing from the formal Foreign Currency Auction System.
In a recent interview with Business Weekly, RBZ governor Dr John Mangudya, said there is now “need to ensure that the manufacturing sector is using foreign currency accessed from the auction system efficiently”.
Dr Mangudya said the amount that had been allotted on the auction system is very significant and now needs to be matched by the situation on the ground which is to the contrary.
“The question is, are all those raw materials coming to Zimbabwe, are they producing, and if they are producing why do we see some of these companies using rates which are above the auction rate?” Dr Mangudya questioned.
He said some companies are now interested in making foreign exchange gains and not from production.
As a result, Dr Mangudya believes there is now an urgent need to enforce discipline and compliance on import bills of entry.
He said while businesses were importing raw materials and capital goods everyday it was not showing in terms of increased production.
“You then ask yourself, is this capital producing goods and services,” queried Dr Mangudya.
He said while last year it was necessary to continue supporting importers of raw materials and capital goods without asking questions, it was now time to make them accountable.
“Going forward, we now need to ensure that we improve on monitoring now, to see whether the foreign currency allotted to importers was put to intended use and the goods came into the country.
“In Zimbabwe we say that in 90 days imports should be acquitted through the banks. This means we now have more than 90 days since our first auction. We need to increase our monitoring to see if these goods came into the country.”
Dr Mangudya said the central bank believes the economy requires about US$20 million on average from the auction but is surprised that the figures have been high.
At each of the last two auctions this year, more than US$35 million was allotted.
He said the auction system was one of the many sources of foreign currency for business, making it difficult to comprehend whether the economy is absorbing all that is being imported.
Dr Mangudya said the significant drop in fuel imports following the introduction of the auction system and the removal of subsidies was a good example that some economic players were exploiting arbitrage opportunities.
“Right now there are no shortages of fuel, but the imports are much lower.”
The country had critical fuel shortages at higher import levels but is currently enjoying stable supply at much lower import levels.
Trigrams Investment analyst Walter Mandeya, said although the auction system has proven to be an effective method for allocating forex, focus should now be on making sure there are no leakages.
“The focus on monitoring and surveillance is, therefore, the next logical step to tightening the system and prevent leakages ensuring that the country’s forex reserves are applied for the benefit of the nation,” Mandeya said.
He hoped that this step will result in greater co-operation and co-ordination between the RBZ and Zimra with a possible technological solution that ensures that both the RBZ and Zimra are able to track imports from auction to delivery and payment of duties.
“The RBZ doesn’t need to do the monitoring by themselves. The systems need to become linked.”