Zimbabwe is now at risk of fresh protests after the cash-strapped government on Monday night unexpectedly announced that it had cancelled fuel subsidies for imports.
Caught in a debilitating energy crisis that has resulted in serious fuel and electricity shortages, the government said that from Tuesday, May 21, local companies that import fuel will now have to buy foreign currency on the interbank market.
Zimbabwe’s pseudo currency – the Bond Note and RTGS facility – are no longer equal to the US dollar and their value is declining by the day.
Using the interbank market means importers can buy foreign currency on auction using a willing-buyer-willing-seller method. This means the value of the foreign currency fluctuates depending on demand.
Reserve Bank governor John Mangudya on Monday night said the government was discarding the 1:1 local quasi-fiscal currency against the United States dollar ratio, which had been set for fuel imports.
The fuel hikes will see the price of basic commodities shoot up even further, this after being on an upward trend in the past weeks.
“The Reserve Bank of Zimbabwe (the Bank) is pleased to advise the public that with effect from 22 May 2019, the procurement of fuel by the Oil Marketing Companies (OMCs) shall be done through the interbank foreign exchange market,” Mangudya said in his statement.
“There shall be only one foreign exchange rate to be used in the market for the importation of all goods and services. This means that the 1:1 exchange rate that was being used by OMCs for the procurement of fuel will be discontinued with immediate effect.”
The move comes as government says it has secured a US$500 million loan from the African Export-Import Bank to actuate the interbank currency market and soothe the forex crisis.
“The facility will be disbursed into the country through the interbank foreign exchange framework at the prevailing interbank foreign exchange rate on a willing-seller-willing-buyer basis,” Mangudya said.
“Over and above these initiatives, letters of credit (LCs) shall continue to be used for the importation of essential commodities such as fuel, grain and cooking oil. The LCs will also be priced at the prevailing interbank foreign exchange rate.”
He said the central bank had directed banks to “effectively apply the willing-seller-willing-buyer principle” to ensure that the interbank foreign exchange market is reflective of market conditions.
“Accordingly, banks must ensure that there are no moral hazards in the operation of the interbank foreign exchange market. In this regard, all the foreign exchange requirements for bank for their own use that includes dividend payments, subscriptions fees, etc, would need prior exchange control approval; for the proper conduct of the interbank foreign exchange market,” the central bank boss said.
“Similarly, banks should discontinue twinning arrangements for their customs as this undermines the efficient operations of the interbank foreign exchange market.”
Some service stations have already hiked prices, despite Zimbabwe Energy Regulatory Authority acting chief executive Edington Mazambani in a notice early Tuesday morning saying: “The petroleum industry is advised that the prices of fuel have not changed and operators are expected to continue selling fuel into the market as is expected of them.”
He later acknowledged the price hikes in another statement, saying the maximum pump price for diesel is $4.89 and petrol is $4.97 in the local virtual currency.
Violent protests rocked Zimbabwe in mid-January after government hiked the prices of fuel by around 150%.
Then, the price of petrol moved from around $1.36 to $3.35, while diesel went up from $1.20 to $3.20 in local currency.
The fuel price hikes resulted in violent protests, which left 17 people dead, according to human rights organisations. Close to a hundred people were left nursing gunshot wounds.