The Reserve Bank of Zimbabwe (RBZ) auctioned foreign currency which was not available early this year, triggering an allotment backlog.
Companies have been at loggerheads with the central bank after it failed to allot the foreign currency with the backlog of about 10 weeks, a situation that left companies exposed and struggling to restock due to limited working capital.
The central bank’s director for financial markets, William Manhimanzi, told Business Times on the sidelines of the Zimbabwe National Chamber of Commerce meeting in Victoria Falls that RBZ was let down by two miners that did not sell their foreign currency to RBZ.
“Sometime in January and February we were expecting to get forex from Zimplats and Mimosa through their exports but the giant platinum players held on to their money and this hit us hard,” Manhimanzi said.He called for the diversification of the forex generation avenues to cushion the economy from such happenings as Zimbabwe mainly depended on minerals for foreign currency.
He said there are very few firms in Zimbabwe which have the bulk of the money in the market.
Captains of industry have condemned the RBZ for flouting the foreign currency auction system rules resulting in the forex backlog swelling to about US$156m.
Under the set rules, the highest bidder is supposed to access the forex first but the rule is no longer being observed.
Instead, the RBZ was allowing the lowest bidder to access forex ahead of the highest bidder.
Confederation of Zimbabwe Industries president Kurai Matsheza told Business Times the auction system abandoned its mandate and has now been reduced to an ‘allocation mechanism’.
“If you auction the product that is not there you will not be able to settle allotments of the successful bidders for a very long period of time,” Matsheza said.
“Coming to our situation, the auctioning of the money that is not there has happened not once but multiple times as it has continued to happen like that. This is why the backlog continues to be there and it’s not getting cleared. These are the recommendations we gave and we continue to give but the authorities continue without observing the Dutch auction rules.”
He hopes that the authorities will start auctioning what is available and address the backlog. University of Zimbabwe economics lecturer, Moses Chundu, said the admission by the central bank that it auctioned forex that was not available dented confidence in the auction system.
“Developments like these affect confidence as selling a product that is not there is dangerous since the market players will be sceptical about you doing the right thing. Next time, it takes a whole lot of effort to be trusted,” Chundu said.
“Sometimes the authorities will be auctioning what is there but due to lack of trust people will not believe you. The question is, how are you going to get out of this mess if you are not as serious as authorities?”
Chundu said Zimbabwe has to take “bold steps” in correcting what went wrong and carry out transparent processes to restore confidence that was previously lost.
“We are running to introduce the gold coins which are not a solution, what the authorities must do is to accept where they messed up and correct it. They should go into the market and listen to the players and general citizenry on what must be done to regain that lost trust. The confidence will come back quickly and the economy will improve,” he said