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Exchange rate spooks business.

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CZI president Kurai Matsheza

The volatile exchange rate is the elephant in the room and impacts on competitiveness, planning and ease of doing business, industry has said, amid calls by experts to use International Monetary Fund (IMF) windfall to stabilise the local currency.

Business is also battling crippling power cuts, rocketing prices of goods, forex shortages and high tax, among others.

“We can all agree that our economy has some protracted challenges that have stayed with us for far too long but the currency question [exchange rate] remains the elephant in the room as it has a direct impact on our immediate working capital which has a direct impact on production,” said Kurai Matsheza, Confederation of Zimbabwe Industries president.

“If not rectified urgently, this may have created shortages and capacity utilisation in the long run. We need the bid settlement to be shortened to meet the festive season demand which could be under threat with the lengthy settlement of the bids.”

Matsheza said the currency question remains an albatross on Zimbabwe’s ambitions for growth.

“Without resolving it, we will be in a vicious cycle as has been before,” he said.

Monetary authorities have increased the interest rates to around 60% from 40%, restricted money growth and reduced the settlement bids to around three weeks from 11 weeks but the businesses are demanding more to improve on competitiveness.

“The monetary authorities promised to settle bids within two weeks but the process is taking close to three weeks or more. As we acknowledge the improvement, we want the monetary authorities to settle bids within a week so as to enhance our working capital,” Matsheza said.

According to experts, the forex auction system only accounts for just above 30% of the forex needed in the market. This means that the bulk of the foreign currency is sourced from the parallel market.

The gap between the parallel market and the official rate stands at around 90% and is unsustainable for business.

However, Finance and Economic Development minister Mthuli Ncube said the government will continue tying the loose ends to achieve a sustainable gap.

He said the government continues to engage the business to come up with long-lasting solutions to stabilise the exchange rate.

The volatile exchange rate comes as experts say the US$1bn windfall from the IMF has not addressed the crisis.

The IMF availed US$961m in special drawing rights (SDR) in August this year, which Ncube and the Reserve Bank of Zimbabwe governor, John Mangudya said was going to ‘increase the forex reserves position’.

But, Zimbabwe continues to struggle with the exchange rate spiralling out of control.

The Political Actors Dialogue Economic committee chairperson Trust Chikohora said there was an expectation that the IMF support would go towards increasing foreign currency supply to the forex auction and stabilise the exchange rate on both the official and parallel markets.

“In fact, our expectation was to see parallel market rates coming down because the auction system would be performing very well as the funding would be there to defend the currency and the rate would be fairly stable,” Chikohora told Business Times.

“How this works on the market is that the Reserve Bank of Zimbabwe manages the exchange rate using its reserves and in Zimbabwe, the problem is we had no reserves so the bank would find it difficult to manage the exchange rate and defend the currency.”

He said the SDR support was expected to provide stability to the exchange rate, yet the rate had “gone the other way” and “haywire” at the time when the IMF support was received and stability was expected.

“I have got a problem with that and want them [Treasury and RBZ] to explain why they are not using the SDRs as they themselves had pointed out that they would use them partly to stabilise the auction system. I need to know where the SDRs are because they also promised to come back to us and explain the usage of the SDRs.”

Labour and Economic Development Research Institute of Zimbabwe economist Clinton Musonza said the SDR support was expected to “have an impact on the exchange rate”.

“…It has failed to have an impact on the exchange rate. We were expecting that the increase in USD supply would have a negative impact on the black-market premium, but the opposite happened.”

“This means that chances are the money has not yet been released by the RBZ, or if the money was released, it serviced debt.”

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