ZIMBABWE will not adopt the United States dollar as the sole currency because that will be suicidal to the economy, and businesses and people who continue to demand payments in foreign currency only risk facing the full wrath of the law.
This came out on the first day of the three-day 2022 pre-budget seminar which started in Victoria Falls yesterday.
Finance and Economic Development Minister Professor Mthuli Ncube told the seminar that the country cannot adopt a single foreign currency.
“What we are implementing is a very pragmatic approach and we are doing very well. Let’s not allow a few people to destroy the auction (RBZ forex auction system) when everything else is doing well. Those doing it (black market) will be dealt with.
Colleagues we cannot adopt the United States dollar alone as the official currency.You were there before and the queues, huge foreign currency deficits and then you have deflation as a country. That was because of the USD, it is not a good idea, that will be suicidal. What has happened is after we introduced the local currency industry is picking up. It’s about stabilising the currency,” said Prof Ncube.
He said the US dollar and local RTGS will operate concurrently and perform two different roles.
“We are reforming the country, running the country under basically a dual currency regime. Basically we are using the Zimdollar and United States dollar, and of course other smaller currencies. We are using both currencies and you will see shifts one way or the other. We are trying to stabilise the Zimbabwean dollar and we have done well to ensure salaries are not eroded. The United States dollar is performing the role of the savings and investment currency, while the Zimbabwe dollar is performing more of the role of transaction currency, than an investment currency,” said Prof Ncube.
He said such an economy was bound to have disequilibrium and this is what is being faced “because we are in an abnormal situation, but we have to continue to have two currencies because we do not have credit lines that are available to other countries.”
The country is now selling US$15 million every day on the Reserve Bank of Zimbabwe auction, he said. Prof Ncube said the country has tried well to live within its means of US$35 million to US$40 million per week on the auction front, and use of both currencies was necessitated by lack of credit lines on the offshore.He said the target was to keep the exchange rate gap constant as it cannot be reduced to zero because the two currencies have different roles and there were also behavioural issues at play.
Prof Ncube said the balance of payment was strong as more money was flowing in, compared to what leaves the country, adding that this was unique to Zimbabwe.
“So our fundamentals are strong. We have a balance budget and we are enjoying a current account surplus. It’s quite clear that the gap between the auction rate and the parallel rate is being driven more by the micro behavioural factors, people engaging in speculation. We have evidence and we are beginning to reinforce the law when it comes to such behaviour,” he said.
He said the biggest drivers of the economy so far, despite the Covid-19 pandemic, have been the fact that corporates were doing well as a result of economic reforms hence more revenue from tax, value added tax, customs duties and capital transactions, among others.
Prof Ncube said with two months before year end, Treasury still believes in recovery and hence has stuck to projected Gross Domestic Product growth of 7,8 percent and this was buoyed by commodity prices which were stable and the general improvement in the macro economic environment.
The pre-budget seminar is meant to take Parliament to the people so that it works hand in hand with other arms of the State and society at large. It is being held under the theme: “Reinforcing Sustainable Economic Recovery and Resilience.”
Speaker of Parliament Advocate Jacob Mudenda implored the Ministry of Finance and Economic Development to deal with exchange rates and foreign currency challenges.
He was responding to a point of order raised by Hon Temba Mliswa, the Member of Parliament for Norton who complained about businesses that demand foreign currency only in Victoria Falls.“If you drive out you see people not accepting the Zimbabwean dollar.
This is an issue that is confronting us as a nation particularly as we prepare our budget and we need to find ways and means to make our local tender attractive and the currency of our transaction. It is our responsibility together as Parliament and Executive,” said Adv Mudenda.
He commended efforts by the Central Bank to hold the parallel markets culprits to account and also its recent engagement with the private sector in order to bring sanity to the exchange rate regime. Some businesses were now pagging the exhange rate of the local currency to the USD to 1:180, or up to 200, in clear violation of the law.
Adv Mudenda said the country can restore the store value of the Zimbabwean dollar by marshalling in substantial gold reserves into the Central Bank.
Adv Mudenda said this year’s pre-budget seminar comes at an opportune time when globally nations were still battling with the impact of the Covid-19 pandemic which continues to stifle socio-economic growth and development and negatively disrupting livelihoods.
“It is against this backdrop that we are congregating here in the next three days in order to come up with a broad based budget framework which will reinforce sustainable economic recovery in a manner resilient enough so as to propel Zimbabwe to build back better in the next financial year.
In that context, Parliament and the Executive are enjoined to craft the 2022 budget which is people-centred and inspires economic hope against the vagaries of the threatening widening gap between the auction system foreign currency rates and the galloping parallel market premium whose attendant impact is price instabilities,” he said.
Adv Mudenda said the pre-budget seminar sought to review the macro-economic performance of the 2021 National Budget, discuss the 2022 fiscal framework and economic outlook, among other things.He said the budget should be pro-poor and prioritise the needs and aspirations of the marginalised groups such as women, youths, children and people with disabilities as well as gender mainstreaming, as well as to fund the women’s Bank.
He challenged legislators to familiarise themselves with the economic blue print, National Development Strategy 1.