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Zimbabwe: Mixed Reaction to RBZ Forex Measures
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Zimbabwe Standard (Harare)
3 May 2008
Posted to the web 5 May 2008
Ndamu Sandu
CENTRAL bank governor Gideon Gono's thrust to float the exchange rate is a step in the right direction but analysts warn of the need for the authorities to respond "timeously" to concerns raised by stakeholders.
Presenting his first quarter monetary policy statement on Wednesday, Gono said foreign exchange pricing has to take into account the need to "incentivise" all its generators to remain viable while at the same time minimizing the unintended consequences on the vulnerable segments of society.
"In the case of all other generators of foreign currency, or exporters liquidating their FCA (Foreign Currency Account) balances, funds are sold on a willing-buyer, willing-seller basis through formal banking channels (authorized dealers) at the ruling inter-bank foreign exchange pricing level," Gono said.
In the case of exporters, on the date of receipt of export proceeds, the applicable surrender level is sold to the RBZ at the inter-bank rate, and the rest of the proceeds deposited in the FCA for "own use" and sales into the inter-bank market after holding the deposit to a maximum of 21 days.
Under the new dispensation, every day each bank shall display the average buying and selling prices for foreign exchange it would be offering to willing buyers and willing sellers
Homelink and Money Transfer Agencies will on-sell their foreign exchange at the ongoing inter-bank prices to the central bank but will be left with a US$100 000 float.
Gono said the foreign currency from the inter- bank foreign exchange market would be alloted to priority sectors as follows: food, food production, food-related machinery and spare parts (35%); fuel and electricity (20%); other non-alcoholic industrial inputs (20%); public and commercial transport (5%); school fees, business travels (10 percent); and medical drugs, medical equipment and consumables (10%).
The new measures raise hopes that for the first time, the government has now accepted that it is the market that determines the prices of goods and services. Pricing distortions in foreign exchange, where there were multiple exchange rates, had created arbitrage opportunities with those accessing the precious commodity on the official market offloading on the parallel market, and raking in trillions.
Analysts warned, in interviews with Standardbusiness, the noble initiative hinges on the authorities allowing the system to work.
Mudzingwa Nhiwatiwa, an economic analyst at the Zimbabwe Allied Banking Group says the new measure was a starting point and "a realization that people have to get value for their money".
"It's a starting point. If players raise concerns RBZ has to respond to those concerns timeously," he said
Nhiwatiwa said the success of the measures depends on whether corporates and individuals will be able to walk into the bank and get the foreign currency in times of need.
Analysts are wary the ghost of the past will return to haunt the noble initiative. In his maiden monetary policy statement in 2003, Gono announced a forex auction system where rates were tracking the black market. But before the nation could enjoy the benefits, the system was discarded.
"We are yet to see whether it (currency) will be allowed to float," said John Robertson, an independent economist.
"We are yet to see whether they mean it."
Robertson said the success of the new measures hinged on production on farms and industries.
"We need production. We are throwing money at people who are not productive," he said, referring to cheap loans doled out to so-called new farmers.
Singing from the same hymn sheet with his principals, Gono blamed sanctions as one of the main hindrances to collective efforts to turn around the economy.
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He said society's most vulnerable members are "receiving the most severe punishment, having to go without medicines, without transport, without food and all this in the face of droughts and floods and without many other basic commodities".
Robertson sees the blame game as an indication that Gono is in denial -- anything other than sanctions was the cause of the problem.
"The development of faulty policies is where the problem lies...we have the farmers who have the expertise but are not allowed to work," said Robertson.
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