TREASURY will fund the 25% export surrender requirement to the central bank to slow down the ballooning money supply in a new desperate attempt to save the free-falling Zimbabwe dollar, among several other changes.
Over the past several weeks, the Zimdollar has fallen by over 20% and 30% on the official and parallel forex markets, respectively, and continues to lose steam.
The drop off is tied to cash injection into the market as the government resumed paying its contractors who are pricing their goods at a parallel forex rate that is above 100% the official foreign currency exchange rate.
Resultantly, money supply has spiked and with very little economic growth to support it, the Zimdollar has lost value and continues to do so daily.
“Treasury will now fund the Zimbabwe dollar component of the 25% foreign currency surrendered by exporters, in order to eliminate the creation of additional money supply,” Finance minister Mthuli Ncube said in a statement released Monday evening.
“The foreign currency collected from the 25% that is surrendered, will now be collected by Treasury and utilised in servicing the foreign currency loans assumed from the Reserve Bank of Zimbabwe. Banks will no longer withhold any foreign currency surrendered by exporters, and all the liabilities to the banks will be settled through Treasury.”
He said the measure was effective starting tomorrow.
In February, the Reserve Bank of Zimbabwe (RBZ) increased the export proceeds retention threshold to 75%, from a previous of 60%, meaning only 25% of export earnings would be surrendered to the central bank.In exchange, the 25% would be converted into local currency and handed back to the exporter.
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Ncube’s latest measure means Treasury will now fund the 25% liquidated portion of forex to the RBZ and keep the forex proceeds itself.
However, Treasury has often used debt securities to fund its expenditure in the past which also results in an increase in money supply.
“Government will continue to sterilise excess liquidity already injected into the economy through issuance of Treasury bills, while the reserve bank will also continue to sterilise through appropriate monetary policy tools,” Ncube said.
“The assumption of the external obligations by Treasury and implementation of non-inflationary financing of the liabilities, coupled by sourcing of additional resources, will go a long way in reducing money supply growth and its impact on exchange rate depreciation and price increases.
“Government remains firmly committed to the maintenance of macro-economic stability, the preservation of the purchasing power of the Zimbabwe dollar and the restoration of trust and confidence in the economy.”
Another threat to the money supply is Treasury assuming all foreign currency debts from the RBZ starting tomorrow.
Ncube said government would create a debt redemption fund to service other external liabilities in line with the arrear clearance programme.
Other measures to shore up the Zimdollar include Ncube ordering all government agencies including parastatals to substantially collect their fees in local currency.
The performance of the money supply during the first quarter shows a clear relationship between the increase in money supply and currency depreciation.
During the period, the money supply grew nearly 37% to $3,19 trillion from December 2022.
Also, during that same period, the Zimdollar fell nearly 36% and approximately 45%, against the United States, on the official and parallel forex markets, respectively, a comparable percentage movement to the increase in money supply.