Tobacco sales no panacea to forex woes

Eric Chiriga

THE sale of tobacco this season will not help improve the shortage of foreign currency, Finhold says.


“This year

’s crop size of about 100 million kg is unlikely to have much of a positive impact on foreign currency inflows, given the extent of shortages on the foreign currency auction,” Finhold says in its economic update for March.


Traditionally tobacco, the major foreign currency earner in the country, helps to stabilise the Zimbabwe dollar.


In 1996 actual shipments and free funds of tobacco were US$702,1 million, in 2004 they were US$184,6 million and the target for this year is only US$250 million.


Finhold added that pressure for a significant devaluation is mounting given the fact that only 3% of bids on the auction market were successful.The shortage of foreign currency on the auction market has been worsening. In the auction of January 5-17, 867 bids were rejected out of 967 while in the auction of January 6-20, 2 466 bids were rejected out of 2 554.


The average rejection rate rose from 93% in January to 97% in February. The total amount of bids surpassed the US$100 million mark on February 10 and 14 auctions, translating into demand of nine times more than the fixed supply of US$11 million per auction.


Due to the continued excess demand of foreign currency over supply, the Zimbabwe dollar depreciated further against major currencies on the foreign currency auction market during the month of February.


“The Zimbabwe dollar fell by 6%, 5%, 5% and 3% on the month against the South African rand, Botswana pula, euro and the British pound, respectively. It also fell by 1% against both the Japanese yen and the US dollar,” Finhold said.


The financial institution said money market liquidity conditions eased temporarily during the first two weeks of February, with shortages improving from $316 billion on February 1 to $9,5 billion on February 11.


This was mainly due to an injection of about $1,1 trillion in the form of Treasury Bill maturities and government deposits of civil servants’ salaries around February 10.


A further injection of more than $1,1 trillion in the form of more Treasury Bill maturities between February 14 and 28 failed to neutralise withdrawals from the market arising from corporate tax payments.

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