RESERVE Bank of Zimbabwe (RBZ) governor John Mangudya (pictured) has threatened to blacklist firms which do not liquidate their foreign currency on the forex auction as well as those who purchase the currency from the platform only to sell their products at a premium.
Since the first foreign currency auction started on June 23, the Zimbabwean dollar has slowly stabilised. The auction system has also slowed its depreciation on the parallel market due to lower official foreign currency rates currently at US$1:ZW$82,91. The local currency still remains highly volatile.
As a result of the lower rates, rent-seeking behaviour has emerged as the parallel foreign currency rate ranges between ZW$95 and ZW$120 to the US$1. This is because bidders who come to the foreign currency auction can make exchange gains of nearly 45% if charging their goods using the parallel market forex rates.
“It would appear that in this economy, people always need to be forced to comply. It’s not part of my DNA, but it appears that this is the DNA for Zimbabweans and it is a great concern. So you ask, what do you do with those people who are coming to the auction buying at ZW$82 and selling at ZW$95 (against the greenback)?” Mangudya said responding to a question by this paper at a virtual conference held by the Zimbabwe Revenue Authority on Thursday about paying taxes in foreign currency.
“For us to know this thing, that is malpractice, it’s because some have complained to us otherwise we won’t know. If you go to the shops there is an implied exchange rate that they are using. Go to the pharmacist they use ZW$100, ZW$110 or ZW$95, but they come here at the auction at ZW$82. Now what do we do with them?
“This is why we have toll free numbers — we enforce compliance on those entities that are doing those malpractices. Obviously, the sanctions that are going to be there are very simple. If you do not want to comply it means that we blacklist you from coming to the auction.”
He added: “And, those ones who are not complying by coming to auction and they have got their money in their foreign currency accounts, again, they need to be also blacklisted so that is what I am now talking about, forced compliance. It is a pity that in this day and age CEOs need to be told that they are not complying. I don’t really know what they will be trying to do.”
The pricing of goods still remains significantly higher than the foreign currency rates on the auction.
Further, experts say since the start of the foreign currency auction on June 23, the government has been the main funder of the platform.
Experts say this is based on the fact that the weekly allotted auction amounts have remained on the lower side and largely unchanged.
The central bank is funding this foreign currency auction from the average of 30% to 35% forex retention from exporting proceeds.
Meanwhile, Mangudya said the economy is a “mid-term dollarised economy” and that there is enough foreign currency in the market. He said this is based on the fact that total foreign currency deposits stood at US$1,1 billion as of last week, from US$840 million in January. Further, in the first seven months of the year diaspora remittances rose 33,3% to US$466,2 million compared to the comparative 2019 period’s US$349,7 million.