The Sunday News
Judith Phiri, Business Reporter
THE Government has introduced additional measures in a bid to stabilise the exchange rate and control inflation.
Government has recently taken significant steps to stabilise the exchange rate as announced through the Presidential Policy Statement and other policy measures.
The impact of these measures have signalled to the market, Government’s total commitment to enhancing the country’s foreign exchange management systems. However, additional measures have been taken to further strengthen these systems, based on well established economic facts relating to the country.
“The Ministry of Finance and Economic Development has put in place the following measures to build further confidence. Entrenching of the multi-currency system in law, Government has clearly stated its intention of maintaining a multi-currency system based on dual use of the US dollar and the Zimbabwe dollar.
“However, the market lacks confidence that the multi currency system is here to stay for the foreseeable future. To eliminate speculation and arbitrage based on this issue, the Government has decided to embed the multi-currency system and the continued use of the US dollar into law for a period of five years,” said Minister Professor Mthuli Ncube.
The key drivers of exchange rate instability in any economy are said to be fiscal deficits and the money creation by the monetary authorities. These two policy variables have for a long while now been brought fully under control by the Government of Zimbabwe.
The Minister said another measure was entrenching the inter-bank market exchange rate in law with it now being determined by banks on a willing buyer- willing seller basis.
He said the utilisation in all economic transactions of this formal rate was now made mandatory by law.
“While economic agents are free to price their goods in US dollars or Zimbabwe dollars, and there are no price controls, the equivalence of US dollar prices and Zimbabwe dollar prices for a commodity should be strictly based on the current interbank exchange rate as determined by the Willing Buyer Willing Seller rate,” added Minister Prof Ncube.
He said no discounting of prices for payments made in US dollars shall be allowed and the law provides for strict criminal and civil penalties including US dollar-based fines, suspension or cancellation of business/trading licences for offenders, amongst other penalties.
In terms of measures to stabilise the price of fuel he said Government has made interventions in the fuel sector over the past few months following significant pressure on global fuel prices due to the tensions in Eastern Europe and they have been intervening in the sector in order to stabilise fuel prices.
“The actions have included downward review of Government Fuel Levies and Release of fuel from the Strategic Fuel Reserve.
“This week, Government completely removed the levy on diesel and brought it to zero cents, and significantly dropped the levy on petrol. This action prevented the price of fuel from breaching the US$2 per litre mark,” added the Minister.
In terms of interventions in the grain sector, he said Government has noted that there is a looming shortage of maize meal and flour in the market which has resulted in the sharp increase of the price of bread and mealie meal to levels which the ordinary citizens cannot afford.
“Whilst the levels of our Strategic Grain Reserve are relatively below ideal levels, there is, nevertheless, urgent need for Government to intervene to bring stability in the price and supply of maize meal and bread flour in the economy.
The following is, therefore, being proposed to provide interim relief to millers.”
For wheat, the Minister said Government should release 20 000 metric tonnes (MT) per month to millers for the next three months beginning in July 2022 at the import parity price calculated at the prevailing interbank rate.
Prof Ncube said millers have indicated that they will in turn import 70 000MT of wheat over the same period and the wheat will be sold at an import parity price of US$680 converted into local currency equivalent at the ruling exchange rate.
“Therefore, the price of wheat to millers will be ZWL$239 360. For maize there will be an immediate release of the 7 000MT outstanding maize allocations to millers which had already been paid for but could not be allocated due to technical issues.
“Over and above this, millers have indicated that they have 25 000MT of maize which has already been paid for and are ready to make a swap arrangement with Government, in this regard, Government will release the equivalent quantity of maize from the Strategic Reserve in July 2022 against the impending delivery of the purchased maize.”
He said thereafter, there will be a further release of 27 000MT of maize from the Strategic Grain Reserve to millers at a price of ZWL$75 000 plus the US$90 at the prevailing interbank rate.
The Minister said the selling price of maize to millers will, therefore, be at ZWL$106 680.
Giving further recommendations, Prof Ncube said it has been noted with concern that millers have always put the burden on Government to replenish their grain stocks.
“Whilst we appreciate the importance of ensuring food security to the nation, millers should be encouraged to source their own grain stocks whenever possible. Given the envisaged shortfall of both maize and wheat during the current season, the Government will expedite the importation of maize available in Malawi and Zambia, while wheat will be sourced from cheaper source markets.”
He said the Government remains committed to maintaining macro-economic stability and the elimination of harmful and destabilising arbitrage conditions that have pervaded the economy at the expense of the generality of citizens.