Reserve Bank of Zimbabwe chief John Mangudya this week moved to lift production in the economy with a US$200 million financing to raise exports.
He said focus should be on foreign exchange generation and production of goods.
“Focusing on foreign exchange generation and the production of goods and services is essential, not least because foreign exchange is a critical factor of production especially under dollarisation and when the country is internationally isolated as evidenced by Zimbabwe’s limited access to foreign finance,” Mangudya said.
“The country needs to produce and create foreign exchange to finance its needs that include fuel, electricity, loan repayments, portfolio investments flows and raw materials for industry. There is no substitute for hard work to generate and enhance the supply of foreign exchange, especially given the country’s external position which is already weakened by more than 16 years of economic and financial isolation. We are by ourselves — a situation that compels us as Zimbabweans to pull together, to be closer together — and focus on nation building, and reducing the power of negativity.”
He said there was need for efficient utilisation of foreign exchange.
Cash shortages have created premiums for hard currency with some discounting the bond note by as much as 25%.
“It is the discrepancy or mismatch between the supply and demand for foreign exchange, in a dollarised Zimbabwean economy, that cause cash shortages and scarcity premiums of between 5%–25% in the informal or parallel markets,” he said.
“The scarcity premiums or discounts are thus a symptom of excess demand for foreign exchange. It is therefore not the mediums of exchange — US dollar cash, bond notes, plastic money or the real-time gross settlement (RTGS) — that cause premiums in the parallel markets or the multi-pricing system. It is the disequilibrium or mismatch between the domestic quantity of money (local dollars) and the supply of foreign exchange (foreign dollars) that cause cash shortages and, resultantly the scarcity premiums and the multi-pricing system.”
Mangudya said the lower supply of foreign currency was owing to limited access to foreign finance and declining foreign investor confidence, a development that reduced capital flows and the indiscipline-induced leakages of forex through illicit transactions.
He added the multi-currency system adopted by government in 2009 would not change until the economic fundamentals for the return of the local currency are attained.
He said until sustainable foreign exchange reserves equivalent to one year import cover and business confidence improves, the local unit would not make a comeback.
His comments come after he introduced bond notes, which he claimed had a par value with the US dollar, last year. —