HomeOpinionRemittances key to reduction of Zim poverty

Remittances key to reduction of Zim poverty

ACCORDING to the Reserve Bank of Zimbabwe (RBZ) statistics, diaspora remittances for the first five months of 2021 have breached the half a billion mark settling at a record US$527 million compared to circa US$200 million for the same period last year.

With this rate, remittances are highly likely going to be sitting on number two in the list of 2021 top foreign currency earners for the country. The latest available Zimbabwe Statistics Agency (Zimstat) trade statistics show that in the first quarter of the current year, Platinum Group Metals (PGM) was the top forex earner at about US$228 million.

Due to the unavailability of full data, using average, remittances brought in about US$316,2 million in the first quarter, which is US$88,2 million higher than PGMs earning. However, in my view, PGMs will retain the top spot for forex earners, a projection that is based on current developments in the commodities market. The globe is gradually retaining normalcy with economic re-opening and heightened travel causing a jump in demand for automobiles. PGMs like platinum are used as catalysts in motor vehicle manufacturing.

Yes, given the status quo, high remittances are good for the country. In the last two years, the country experienced its worst economic crisis since the 2007/8 hyperinflationary period. The country experienced drought, acute energy deficit, incessant currency depreciation, skyrocketing general price levels and income levels tumbled.

Currently, the average salary for a civil servant is approximately ZW$20 000 which is below the poverty datum line (PDL). The situation is the same even in the private sector where workers, especially those in the service sector are being paid peanuts.

As such, the majority of Zimbabweans are considered to be poor. Remittances (foreign currency) are helping in closing the poverty levels and inequality gaps in the society, and they rarely depreciate thereby providing a shield to the consumer.

However, the fact that the rapid ascending of remittances is showing no signs of slowing down is a testament to economic hardship here at home leading to a massive exodus of the citizens in search of greener pastures abroad.

Also, a large chunk of remittances is being traded on the parallel market, thereby offering diminished benefits to the productive sector. The statutory instrument SI127 of 2021 promulgated by the Government towards the end of May has effectively lowered the purchasing power of the greenback in the informal business setups. This is now chasing US dollars away from formal entities leading to a buoyant hard-to-tax informal sector.

High remittances increase foreign currency in circulation in the economy, which is a positive for the Zimbabwean dollar. However, so far this year, we have witnessed a massive ZW$ decline on the parallel market, pushing the premiums to above 50% from about 20% in December 2020.

For sustainable exchange rate stability, parallel market premiums should not exceed the 20% conventional threshold. The ZW$ decline shows excessive injection of local money in the system.

The economy is fast-absorbing ZW$60 billion extra spending by the government via the Grain Marketing Board (GMB) purchasing cereals and it is also offering staggered salary reviews. To fully benefit from the ever-growing diaspora, there is a need for authorities to create attractive investment vehicles specifically targeting the niche.

Furthermore, the auction exchange rate should be liberalised to reflect true ZW$ market value. This will increase the flow of critically needed foreign currency in the formal sector and support exchange rate stability.

Gwenzi is a financial analyst and MD of Equity Axis, a financial media firm offering business intelligence, economic and equity research. — respect@equityaxis.net



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