De-dollarisation: Govt swims against the tide

GOVERNMENT, which is losing the battle to prevent de-dollarisation, says the foreign currency transition in the economy came at industry’s request, but the authorities remain adamant about maintaining a mono-currency regime.

Melody Chikono

Speaking at a post-budget review meeting, Finance ministry permanent secretary George Guvamatanga said on the currency issue, the government took into account the requests and proposals submitted by industry.

The insistence on the mono-currency regime is despite the economy’s rapid decline, characterised by a crippling liquidity crunch, acute shortages of fuel and foreign currency and runaway inflation, which is nearing 800%.

The value of the local unit has weakened significantly against the greenback since the government dumped the multi-currency regime and declared the Zimbabwean dollar the sole legal tender last year through Statutory Instrument 142 of 2019.

Stung by the rapid freefall of the local currency which has decimated incomes and pensions, the government has legalised the use of free funds for transactions, initially as a measure to ameliorate challenges caused by the advent of the Covid-19 pandemic. The government has also paid Covid-19 allowances of US$75 and US$30 to civil servants and pensioners respectively although not in the form of hard cash.

But Guvamatanga said this should not be mistaken for the government backtracking on the mono-currency regime.“It comes back to whether we are moving to dual currency or mono-currency.

Government position remains that we are pushing for a mono-currency but there are transitional policies that we have had to implement to support the economy during this pandemic and those should not be mistaken as if we are actually moving away from the stated policy of mono-currency,” Guvamatanga said.
“In any event, the actions we have taken are not the doing of government but those have been at the request of the industry.

If you look at our policies on exchange rate over the course of the last 12 months, it will show you the proposals that have been obtained and submitted by the industry to government and we simply followed the proposals you submitted. So these are your proposals and you should support them and help us to make them a success.”

Guvamatanga was responding to industry’s outcry about export thresholds in relation to exchange rates which it said are unsustainable.The prevailing foreign currency retention thresholds to various sectors of the economy have discouraged formal production and investment in the country.

The foreign exchange control directive that compels all exporters to cede a portion of their export proceeds to the government at the prevailing interbank exchange rate within 24 hours of receipt has also been a major impediment to the resuscitation of the ailing economy.

Guvamatanga said with a stable exchange rate, the issue of forex retention threshold will cease to be a matter of concern.“The issues of retention become irrelevant when we have price discovery mechanisms and right and stable exchange rate.

Retention has always been provided to cover up for price discovery which people have been uncomfortable with. But since the exchange rate that is available for an exporter is stable and is competitive and has value for money, the issue of retention becomes irrelevant,” he said.

“Most of the players arguing about the retention were in the market about 5-10 years ago. Previously all proceeds were liquidated on receipt. And that’s what happens elsewhere across the globe.

At the end of the day what we should aim for is sustainable price mechanisms and that there is a good price for importers and exporters then the issue of price retention will fall away.”

However, Confederation of Zimbabwe Industries president Henry Ruzvidzo said there is a need for the government to provide a roadmap on de-dollarisation which was not clear in the mid-term budget review.