By Stella Mapenzauswa
HARARE- Foreign currency inflows into Zimbabwe’s formal market have ground to a virtual halt in the last three months after the central bank tightened controls, rekindling a thriving black market, analysts and traders say.
The Reserve Bank of Zimbabwe in January set limits on the local dollar’s fluctuations linked to actual trading volumes after the local unit plunged 75 percent against the greenback in the previous 3 months, under a managed float system.
Since then the local currency has been pegged steady at 99,201 to the greenback, effectively snuffing out a fledging interbank market launched last October to replace central bank managed currency auctions.
On a resurgent parallel market, it has slid to about 200,000 against the dollar, a trend which bodes ill for record levels of annual inflation, already above the 900 percent mark.
“What the central bank did in January has effectively killed the interbank market and things have been at a standstill since then,” a trader at a commercial bank said on Wednesday.
“On an average basis trading volumes have only amounted to U.S. $500,000 to $600,000 each day, far below the minimum $5 million which the Reserve Bank says should justify a movement in the exchange rate,” he added.
Zimbabwe’s economy has shrunk by about 40 percent over the past 7 years, with an estimated unemployment rate of 70 percent alongside chronic shortages of food, fuel and foreign exchange.
Analysts said a black market for the Zimbabwe dollar, supplied mainly by remittances from citizens working abroad, had re-emerged this year after dwindling late in 2005 following measures by the central bank to float the local unit.
“We are hearing that most trade is being conducted on the parallel market where those with access to free funds, for example people with relations sending money from abroad, are selling directly to importers at much higher rates,” said Witness Chinyama, an economist with a local commercial bank.
FOREX COFFERS DRY
The Reserve Bank has stopped publishing figures of foreign currency inflows but analysts said the fact that state firms could not access forex from the central bank for their import requirements showed its coffers were dry.
“We understand even parastatals are also having to resort to the black market. That for me is a sure sign that nothing much is coming in through the formal market,” said Chinyama.
Analysts said the stagnant rate was hurting registered exporters who are forced to source foreign currency for key imports through the black market, but compelled to sell their receipts to the central bank at the much lower official rate.
Some companies had resorted to under-invoicing their receipts to reduce the amount of foreign currency they have to surrender to the central bank, they said.
“The current scenario is making it difficult for exporters to stay viable because their production costs are moving at a much higher rate than their revenues, especially when we also take into account the inflation dynamics,” said analyst Nyasha Chasakara.
“There is now a strong incentive to move the (exchange) rate to more sustainable levels although it is not clear whether the Reserve Bank will do this any time soon.”
Inflation surged to an annual 913.6 percent in April, the highest level in the world, triggering another round of basic commodity price hikes for Zimbabweans grappling with a deepening economic crisis widely blamed on the government.
Analysts see little hope this year of a reprieve from annual tobacco sales which used to rake in about 30 percent of Zimbabwe’s export earnings. They are expected to fall by another third when auctions open later this month.
Critics point largely to the seizure of large tracts of land from white commercial farmers who used to produce the bulk of the leaf for the drop in output.
President Robert Mugabe, in power since independence from Britain in 1980, denies responsibility for the country’s economic woes, and in turn accuses his foreign and local opponents of sabotaging Zimbabwe’s wealth over his land reforms. — Reuter