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Zimbabwe: Zim Dollar Devalued
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Financial Gazette (Harare)
1 May 2008
Posted to the web 2 May 2008
Dumisani Ndlela
Harare
ZIMBABWE'S battered currency was yesterday thrust into the open market in a major policy shift that could significantly improve inflows into the inter-bank market and grind down the parallel foreign currency market largely blamed for the country's economic turbulence.
The move by the Reserve Bank of Zimbabwe (RBZ) governor Gideon Gono was announced as part of a comprehensive package meant to win the confidence of a restive business sector and take the economy back on a recovery path.
Under this new policy, exporters and importers can now freely trade foreign exchange in the deregulated inter-bank foreign exchange market, but they will use a pre-determined list of key sectors for disposal of the foreign cash.
Top on the priority list is the grain, food producers, fertilizer, seeds, animal drugs, good-related machinery and seeds category, commanding 35 percent of allocations, followed by fuel, electricity (20 percent) and the non-food equipment and other industrial machinery (20 percent).
Other priority payments include public and commercial transport, vehicle kits, tyres, batteries, wind-shields and other essentials (20 percent); school fees, business travel, professional fees, Information Technology licences and dividends (10 percent); and medical drugs and equipment (10 percent).
Authorised dealers are expected to match sellers and buyers of foreign currency under this arrangement.
Also effective today, authorised dealers, who include banks, money transfer agencies (MTAs) and the central bank-owned Homelink, can now buy and sell foreign exchange at market-determined exchange rates.
They will be compelled to display the average buying and selling prices of foreign currency for willing sellers and willing buyers.
Non-governmental organisations, embassies, international organisations and Zimbabweans in the Diaspora as well as other foreign currency holders would also be able to dispose their foreign currency at the inter-bank rates, likely to replace the fixed exchange rate of $30 000 to the United States dollar.
A banker said the decision by the central bank was in line with the sector's expectations, saying it would certainly shore up foreign currency inflows into the official market.
Homelink and MTAs would sell foreign currency bought under this new framework to the RBZ.
Gono, who indicated the central bank would start a programme to rebuild the country's depleted foreign currency reserves, said all authorised dealers would sell their end-of-day foreign currency positions to the RBZ at the ruling inter-bank rates, leaving cash for their daily float of not more than US$100 000.
In announcing the new policy, which he said was guided by the desire to prioritise the production of basic goods, Gono said it had always been the desire of government "to move our economy more towards the interplay of free market conditions in our allocative and productive systems".
Gono also sought to encourage export growth by reducing the surrender thresholds from the previous 35 percent sold upfront to the Reserve Bank at the government rate to as low as 2,5 percent for those exporters able to grow their export revenues by 35 percent and above.
The surrender levels, thus, vary depending on the exporter's incremental inflows. Reduction of the surrender level means that the Reserve Bank will also now rely on market purchases of foreign exchange to meet government requirement.
Exporters will, however, retain money in their foreign currency accounts (FCAs) for up to 21 days to ensure "greater circulation of foreign currency", Gono said.
Reflecting the central bank's growing concern over inflation, Gono further tightened monetary policy, increasing the key accommodation rates.
This move is expected to inhibit speculative borrowing from the market.
In unveiling these new measures, Gono also castigated government ministries, parastatals and local authorities for adopting a "business as usual" when the economy was "on fire".
He also called for a truce between business and government, calling for a return to the negotiation table between stakeholders and the signing of a lasting pact in the form of a social contract.
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Gono also described corruption and price controls as evils slowing down the country's recovery drive.
He called for stiffer penalties on corrupt practices, as well as the removal of pricing controls.
Gono gave the banking sector a clean bill of health but warned banks to prepare for higher capital requirements later in the year.
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