January 21, 2022

Exchange rate stability crucial for growth in 2022 

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Kuda Chideme

WHEN the Reserve Bank of Zimbabwe’s (RBZ) foreign currency auction was still able to meet demand and timely disburse allotments to the market the results were there for all to see.

Between the last quarter of 2020 and the first quarter of last year companies across sectors reported volume increases as demand picked up and in turn drove capacity utilization.

Inflation which was in the three-digit range quickly subsided and the once menacing parallel market was tamed.

Industry heavyweights from – Delta to Innscor and Seedco- were all in praise of the platform.

There was a semblance of stability but this wasn’t to be for long.

Despite availing close to US$ 2 billion to local companies by the end of the year it was clear that the RBZ became overwhelmed by the demand for hard currency.

Backlogs of as much as 12 weeks started accumulating and the impact was immediately felt and in typical Zimbabwean fashion exaggerated as some dealers cashed in on the arising arbitrage opportunities.

Some were even unjustifiably increasing prices in USD yet they sourced hard currency from the RBZ at the auction rate.

As if this wasn’t enough, global inflation pressures on foodstuffs and gas also added to the price increases and distortions in the market.

There is a growing sense of panic in the market that the gains from the stability seen in the economy over the past 12 months would all come to nought.

All these fears are certainly not unfounded as the parallel market is yet again thriving and laying bare the shortcomings of the RBZ auction.

So going into 2022 it is not surprising that most companies have highlighted exchange stability as the biggest risk item for the year.

The RBZ has to hone its auction system and ensure the availability of foreign currency in the market for genuine businesses to import crucial inputs, spares and pay off foreign obligations.

Authorities also have to deal with market indiscipline to make sure that companies and individuals comply with the law in terms of pricing, access and allocation of foreign currency.

It is also crucial that the central bank’s monetary targeting framework be religiously adhered to.

We cannot afford to upset the balance in monetary supply. On that note, all government spending should be kept in check.

This however should not be an excuse for the government not to review the working conditions of the civil service.

But a delicate balance has to be struck to cushion the long-suffering workers who have committed their lives to service.

After all, the resultant increase in consumer spending would bring some cheer to the retailers and manufacturers in a year that would have been otherwise subdued.

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