Africa Moyo
Government says it is committed to guaranteeing the 1:1 conversion rate between the US dollar and RTGS balances, adding the $500 million obtained from the Afreximbank to back the conversion rate is adequate.
Finance and Economic Development Minister said concerns by critics that the $500 million Afreximbank facility did not match the estimated $9,5 billion deposits — as at June 30, 2018 — were unfounded as there is no need for an equivalent cover.
“As Government, we are guaranteeing conversion. So really the issue of how you deal with treatment in terms of the balance is not an issue,” said Minister Ncube.
“The issue is the conversion 1:1 to US dollar. That is your benchmark currency, that is your reference currency (and) that is the most important thing.
“We need to guarantee value. How we are doing it? We have a line of credit offshore, which guarantees this conversion (but) there is always some confusion about the nostro balances that are so large.
(But) actually it turns out that only what you need is a third of the FCA (foreign currency account) that is doing the rounds, only a third.”
Social media and pseudo analysts have gone into overdrive, criticising the announcement by Government that the conversion rate remains 1:1 between US dollars and RTGS balances.
The skepticism was worsened by the announcement during the Mid-Term Monetary Policy Review Statement that individuals and companies were now free to open FCAs.
The move was designed to ensure that companies, largely those that export or have access to foreign currency, can keep their foreign currency reserves locally and utilise such funds when need arises.
Banks have been given up to November 1 to ensure such accounts are opened.
1:1 conversion rate key to success of reforms
Minister Ncube said “in a normal monetary environment”, the reserves never match the import demand of 1:1 exchange rate.
“It’s never like that; it’s always a fraction because your inflows are a flow and not a stock, so the demand is always continuous. So you cannot cover completely everything.
“Go back to normal economics, there is no 1:1 coverage, it’s always a fraction,” said Minister Ncube.
He said the rate has been pegged at 1:1 to preserve value during the “transition phase”.
A parity conversion rate is seen as central to the achievement of the economic reforms that have been set in motion by Government to stabilise the economy.
Minister Ncube said it was difficult to “implement our reform programme which we think is excellent, if value is all-over the place”.
He has since announced a raft of far-reaching economic reforms targeting the currency and turning around of parastatals to ensure that the economic recovery agenda is realised.
Parastatals have become an albatross in Treasury’s neck by perennially seeking financial bailouts even when they don’t have bankable turnaround strategies. Management at State enterprises have come under fire for failing to put in place structures that ensure profitability.
Curiously, executives continue to take hefty packages despite clear operational challenges of the companies they lead.
Cost-containment measures only affect the shop-floor workers.
In 2016, 38 out of 93 State-owned enterprises that were audited incurred a combined $270 million loss due to weak corporate governance practices and ineffective control mechanisms.
Minister Ncube recently said Government has carried out an exercise of categorising all State -owned enterprises according to their degrees of viability, profitability and balance sheet strength.
The process of privatisation will therefore be accelerated for 11 targeted parastatals to be privatised in the next six months. The move is expected to not only improve the parastatals’ viability, but also strengthen the public private partnership character of the enterprises and generate the much-need revenue to Government.