-urged to disband Dutch auction system
MARTIN MAWAYA
HARARE-Zimbabwe Coalition on Debt and Development (ZIMCODD) has hailed the government for robust measures to stabilize the economy and the sliding currency.
It says the new economic stability package will increase the uptake of the local currency, encourage deposits of United States dollars, stabilizing the exchange rate and dealing with pricing madness.
Analyzing the raft of measures announced by the Minister of Finance and Economic Development, Mthuli Ncube on Monday last week, ZIMCODD praised government for maintaining the 2% tax cash withdrawal so that the demand for United States dollars will be reduced thereby making cash withdrawal expensive, however the organization implored authorities to increase the threshold to cushion low-income earners.
“By increasing tax revenue collected in local currency, demand for ZWLs will be created as people liquidate USD holdings to pay their dues to the tax man.
“All things being equal, this measure should help save the ZWL which at the moment is on the verge of total collapse and market rejection.
“Since the start of 2023 to date (YTD), it has lost a staggering 75% of its value in alternative markets which is only two (2) percentage points lower than a 77% decline registered in the entire 2022.
“The numbers show that the ZWL is failing to perform its store of value function. As a result, economic agents are dumping ZWLs in the market as soon as they earn them.
“However, for durable ZWL stability to be realized, the policy must be fully implemented and buttressed by other measures inter alia promotion of fiscal transparency across all tiers of government, sustainable (within limits) fiscal spending, tight monetary policy, efficient & effective public service delivery, and a flexible exchange rate regime which is key in attaining uniform market exchange rate,” reads part of the analysis statement.
It further noted that hiking the Bank’s policy rate also discourage speculative borrowing by banks as well as other demanders of loanable funds; hence the RBZ should ensure that the rate of the money supply is in tandem with the rate of the economic growth.
The social and economic justice organization also commended treasury for funding the Zimbabwe dollar component of 25% foreign currency surrendered to exporters saying it reduces quasi-fiscal operations (QFOs) by RBZ and clamping money supply growth.
Of note, ZIMCODD highlighted that for the measures to be sustainable government needs to cut its expenditure so that they exert pressures on the exchange rate depreciation.
“It remains to be seen if there will be adequate political will, especially in an election year to cut on burgeoning fiscal spending.
“Also, because of limited due diligence in public procurement processes and procedures, Treasury is making unjustifiably huge ZWL payments to government suppliers and contractors who in turn offload these balances on the parallel market.
“Fiscal spending is also rising as government supports winter wheat farming, attempts to cushion public servants, engages in unproductive election-linked expenditures, and anchors the 2023 Agric marketing year funding grain purchases from farmers by the Grain Marketing Board (GMB),” says ZIMCODD.
It further reiterated the need to liberalize the financial market by disbanding the Dutch auction system which they say is breeding exchange rate multiplicity and rent-seeking behaviors.
Whilst welcoming the 1% tax on all foreign payments to reduce the country’s spending on foreign goods and services by making imports expensive, ZIMCODD called for some exemptions on industrial raw materials imports.
According to the latest RBZ statistics, the Zimbabwe dollar component of broad money (M3) spiked unsustainably by 12.8% in March 2023 to ZWL1.32 trillion from ZWL1.17 trillion in February 2023, with a year-on-year (YoY) basis, Zimbabwe dollar component of M3 grew by a staggering 324% from ZWL312.22 billion recorded in February 2022.
On Monday, treasury announced economic interventions, that includes weekly auctions to be limited to a maximum of US$5 million and that all winning bids should be paid within 24 hours of award as a way of fast tracking convergence of the interbank and auction exchange rates.
Other notable measures include additional taxes to increase government fiscus, tightening monitory policy to discourage speculation as well as the promotion of the use of the domestic currency.
