Business leaders back government monetary measures
Oliver Kazunga Senior Business Reporter
Industry CAPTAINS and economic analysts believe that the series of policy measures taken by the government to stabilize the local currency will support progress towards measured de-dollarization.
The interventions were prompted by the continued depreciation of the Zimbabwean dollar, particularly in the parallel market, which fueled the resurgence of inflationary pressures in the economy.
Zimbabwe’s annual inflation, which hit a two-year low when it fell to 50.1% in June last year in response to government policy measures, soared to 96.4% in April from 74, 6% in March.
Amid exchange rate volatility, the Zimbabwe dollar is now trading between $300 and $400 against the greenback in the open market and $165/US$1 in the auction market.
President Mnangagwa said over the weekend that the government was convinced that recent movements in exchange rates were driven by negative sentiments among economic agents as opposed to economic fundamentals.
Thus, interventions will address problems of excessive liquidity in the economy, speculative borrowing from banks and stock market transactions and improve confidence in the functioning of the foreign exchange auction system.
Among other policy statements, domestic transfers of foreign currency will now be subject to a 4% Intermediate Money Transfer Tax (IMTT). Other measures include a 2% levy on foreign currency withdrawals, settlement of foreign currency tax liabilities to the Zimbabwe Revenue Authority in local currency using banks’ willing bid-ask exchange rate and suspension of loans in foreign currencies by the banks.
President Mnangagwa said authorities’ oversight of financial transactions had been tightened, some financial crimes would carry heavy mandatory prison sentences while the quarterly money supply growth target had been set at zero percent.
To promote long-term investments in the stock market, the government has, with immediate effect, revised the capital gains tax for shares held for a period not exceeding 270 days from 20 to 40 % in accordance with the individual maximum marginal tax rate for Pay as You Team (PAYED).
Furthermore, he said the voluntary buyer and voluntary seller system introduced by banks last month would now be the basis for pricing in the economy, while the amount that can be traded has been increased to 5 000 USD per day up to a maximum of 10,000 USD. per week from 1000 USD per day.
The Chief Executive of the Association for Business in Zimbabwe, Mr. Victor Nyoni, said the government’s latest policy statement is a step in the right direction towards full de-dollarization.
“Given the current economic situation, we must take the bold step of freeing the Zimbabwe dollar to trade freely against major currencies like the US dollar. The president’s latest policy statement is an attempt at full de-dollarization in the context of the current situation.
“We now need to move to full adoption of the Zimbabwean dollar and from the foreign exchange reserve statistics that we read and hear about in the media, the country now has enough foreign exchange reserves to sustain the imports.
“The Zimdollar should now be allowed to trade freely against the US dollar, hence the president’s policy statement is welcome,” he said.
Mr. Nyoni said government and business need to find each other and engage more to address the challenges affecting economic growth during the period of transition to dedollarization.
“For example, in the financial services sector where a policy has been announced that banks are no longer able to lend in foreign currencies, I believe that this policy should be temporary as the government undertakes and concludes all investigations that he leads,” he said.
Buy Zimbabwe, a lobby group that advocates increased consumption of local produce, said it took note of the measures to reduce inflation and stabilize the local currency announced by the president.
Chief executive Alois Burutsa said while the measures were welcome, there was a need to accelerate local content measures to reduce reliance on imports and foreign currency.
“Over the past three years, Zimbabwe’s manufacturing sector has seen impressive growth in capacity utilization, which currently stands at an average of 65. However, for this growth to have a significant impact on wealth and job creation, there is an urgent need to ensure that quantum and local value by Zimbabwe’s key sectors is increased to a minimum of 50%.
“As things stand, the mining sector, which leads in foreign exchange generation, imports more than 70% of chemicals, equipment and related raw materials. Thus, the increase in foreign exchange earnings is easily eroded due to high imported content,” Burutsa said.
He added that to grow the economy, save and create jobs, the government should put in place measures including tax relief and give preference to foreign exchange auctions and public markets to companies that have a threshold. minimum 50% local content.
Confederation of Zimbabwe Industries (CZI) chairman Mr Kurai Matsheza was not asked to comment, saying his organization was due to meet yesterday to deliberate on the implications of the latest policy measures for industry and the economy. economy in general.
“We have a meeting with other members tomorrow and instead of me speaking from my personal point of view, you prefer to wait until tomorrow when we have a position as a board of directors,” he said.
In its position paper, the Zimbabwe National Chamber of Commerce (ZNCC) said the perennial existence of arbitration opportunities could continue to threaten economic stability, suggesting the need to avoid legislating against challenges but to address key drivers.
The member business organization said the main drivers of arbitrage opportunities could be addressed by liberalizing the market as well as improving the quality of policies and response to emerging threats.
The ZNCC said the government should be recommended to respond to the procurement situation, but pointed out that the government was currently the main holder of Zimbabwean dollar deposits and that the lack of strategic disbursements of these funds in the market had also had a negative impact on the currency.
“We urge the Government of Zimbabwe to critically review these measures and seriously consider the submissions that have been submitted by the business community.
“A number of good steps that need to be taken to move this economy forward are well documented and known in the public domain, but the government is choosing to ignore this genuine advice.
“There is no need to insist on establishing a social contract and having it adhered to between policy makers and all interested stakeholders,” he said.
Economic commentator Mr George Nhepera said he understood where the government was coming from with regard to the latest policy moves.
“Any measure in terms of a political statement has a motive and an objective. In this case, the motive is to stop the depreciation of the local currency and the objective is to quickly stop the depreciation of the Zimbabwean dollar. All other consequences resulting from the last policy statement are secondary.
“On the government side, I can understand that the monetary authorities want to give some appreciation to our local currency so that it doesn’t slide to US$1:500.
“Before the latest measures, people were borrowing foreign currencies to lend them on the parallel market, creating arbitrage opportunities and devaluing the local currency,” he said.
Although it seems unorthodox that banks have been prevented from lending, Mr Nhepera said that in the meantime financial institutions should focus on recovering the money they have lent.
“Thanks to the latest policy measures, the parallel market exchange rate will not fall but rather stabilize while reducing inflationary pressures,” he said.
The Chairman of the Political Stakeholders Dialogue (Polad) Economic Committee, Mr. Trust Chikohora, and the former Chairman of the ZNCC said:
“It is important that the president issued a statement to try to stabilize the exchange rate, hence the fact that he recognized this as the major problem at the moment.
“It’s really welcome because that’s what we’ve asked to say that this issue needs to be addressed urgently as it’s the biggest problem facing the Zimbabwean economy right now.”
He commended the government for putting in place a number of measures to restore economic stability, adding that compensating those who had balances of $1,000 or less at the start of January 2019 will help restore confidence in the economy. the banking sector.
“The fact that the interbank rate will effectively be the rate that will be used for pricing is also welcome because the interbank rate is more market-related. It is determined by market players, so it will bring us closer to reality,” said Mr Chikohora.
However, economist Eddie Cross said the latest policy measures were not enough to meet the challenges of obtaining, monetary authorities would likely review them soon.
“I think the political package is unworkable and they will soon be forced to review these measures. The statement should have been made after wide consultation with all stakeholders, I think in this case it was done by a small group of individuals within the Central Bank and the government.
“It’s ridiculous that you’re stopping people from lending and promoting compensation for the loss in value that happened in 2019,” he said.