Uncategorized

No mercy for violating exchange rate — Treasury

17 May, 2024 - 00:05 0 Views
No mercy for violating exchange rate — Treasury Minister Ncube

eBusiness Weekly

. . . Offenders to pay ZiG 200 000 or more

Golden Sibanda

TREASURY insists businesses caught pricing their products or services using an exchange rate higher than the official rate risk severe penalties, as there is no longer any “basis” for doing so after it removed the legal provision allowing traders to put a 10 percent margin above the ruling interbank exchange rate.

This is a legal requirement despite access to foreign currency on the interbank market remaining a challenge while the limited forex supply means there may be gaping differences between the cost at which economic agents obtain forex.

Policy gaps remain where enforcement of the regulations targets the front end of the value chain, forcing businesses to comply with standing regulations but without addressing existing structural defects, to enable economic agents to conform to both regulatory and market conditions.

Presently, the authorities’ drip-feeding of the foreign currency market using proceeds from the mandatory export surrenders only meets a small part of the huge appetite for hard currency in an economy that is heavily dependent on imports, including key raw materials.

Businesses argue that the cost of goods or services also reflects the cost of funding, which in this case becomes the difference between the exchange rate at which they obtain forex funding and the weighted interbank market forex rates at which the rest of the market gets the funding.

Some captains of industry told this publication that the parallel market remained a significant source of foreign currency for many businesses despite the blitz against the traders who are exploiting the attractive returns by seeking to satisfy the needs of desperate foreign currency seekers.

Due to the acutely limited supply of funding on the formal market, some businesses no longer even procure their forex from the interbank market, but other sources including exports and the expensive parallel market, meaning factoring the embedded financial costs becomes critical for profitability.

But Finance, Economic Development and Investment Promotion Minister, Professor Mthuli Ncube, is having none of the arguments from the business sector, adamantly insisting the introduction of the new and somewhat stable currency, the Zimbabwe Gold (ZiG), removed the rationale to set prices above the interbank rate.

Responding to questions from legislators during a National Assembly sitting on Wednesday, Mthuli said the provision for a 10 percent margin above the ruling exchange rate gave leeway for traders to overprice.

Following the repeal of the 10 percent margin on the exchange rate provision, Mthuli said any further violation of the law attracted a penalty of a minimum of ZiG200 000 per offence.

While the penalties start at a minimum of ZiG200 000, if the foreign currency taken in is higher in value, then the penalty equals that foreign currency.

There are extra penalties of five percent a day of the civil penalty on any delayed payments after 90 days.
The change came in Statutory Instrument 81A of 2024, Exchange Control (Amendment of Schedule to Exchange Control Act) Notice, 2024, gazetted last week, which laid down the new requirement and the civil penalties that can be levied against defaulters.

This comes after the Reserve Bank of Zimbabwe introduced the new currency, ZiG, on April 5, 2024, to replace the inflation-weary Zimbabwe dollar.

ZiG is backed by a basket of precious metals, mainly gold and foreign currency that on its launch had a cumulative value of just under US$300 million.

New central bank chief, Dr John Mushayavanhu, said upon its introduction, at ZiG13,56/US$1, that there was US$80 million worth of ZiG in the market.

Traders and open market foreign currency dealers are pricing the local currency between ZiG17,5/US$1 and ZiG20/US$1, reflecting a premium of at least 49 percent between the official and parallel market exchange rates, figures actually higher than what obtained during the RTGS era.

Regardless of the foreign currency access issues and pricing situation in the market, the Treasury chief believes businesses must comply with standing rules and regulations governing the country’s pricing systems.

“It is very important that we should protect our currency and keep it stable and discourage unnecessary speculation. The speculation is unjustified.

“It is clear what the fundamentals are that drive value, that underpins the value of this currency and therefore it should be clear to everybody that this currency should be stable and appropriate official exchange rate should be used for transaction purposes.

“In our desire to protect that, Mr Speaker Sir, we are putting certain measures, certain sanctions on those who deviate from that objective,” said Mthuli.

“First of all, for those who are managing retail or own retail organisations and sell goods to the public, we are insisting as Government that they ought to use the willing buyer-willing seller price for foreign currency as the basis for pricing.

“We have removed any basis to deviate officially from the official exchange rate, that 10 percent exchange limit was causing deviation as an excuse for overpricing purposes.

“So, from now on, we will make use of the willing buyer- willing seller pricing mechanism and any deviation will be sanctioned through a fine of no less than ZiG200 000 per offence. So, those are really the measures we have put in place to deal with the pricing by retailers,” Mthuli said.

He said those trading in foreign currency “on the streets and so forth, clearly, they do so without any licences” and are violating the exchange control regulations and the law has taken its course (against) those that have violated it”. He pointed out that plus or minus 70 individuals had been arrested for breaking the law.

“Police have done their job and some of them have appeared before the courts so that they face justice and stop what they are doing. “It is very important that we all abide by the law to protect our currency. After all, that is the only domestic currency we have.

“The other currencies are foreign currencies and we cannot develop a country without our own currency, neither can we have a full bouquet of microeconomic tools without our own currency and monetary policy,” Mthuli said.

Zimbabwe National Chamber of Commerce chief executive officer, Chris Mugaga, said in an interview that the reason businesses put a premium on the official exchange rate when setting prices was the fact that there was no foreign currency readily available in the market.

“The reason why our constituency put premiums is that they have acknowledged that we cannot get (adequate) forex from the banks. If you go to the bank looking for forex you will not get it.

“So, if you cannot get the forex from the banks, where else can you get it other than the black market?

Like it or not, the black market remains a major source of forex for most businesses,” he said.

With the economy nearly 80 percent dollarised, several businesses have also learnt to survive largely on their domestic foreign currency sales receipts, which they say remain inadequate to cover their needs.

This scenario has resulted in some manufacturers demanding payment exclusively in US dollars to maintain uninterrupted production, however risking heavy penalties for violating the Banking Act.

Mugaga argued that the stability of the ZiG counted for little as long as businesses still struggled to secure the forex they needed to import raw materials.

“What the minister is saying does not define what is happening on the ground. What is happening is that if you go to the banks looking for foreign currency you are not able to get it. If the minister wants a comprehensive approach, he must look at the whole supply and demand of forex.

“If he considers only the stability of ZiG, he will be starting from the front end of the demand and supply chain,” Mugaga noted.

There is, however, confusion within the business community with some saying businesses are now allowed to price products at the exchange rate to which they would have purchased forex from their banks.

When contacted for comment on the new position, Central Bank Governor Dr John Mushayavanhu could only say “We will issue a statement to clarify.”

Share This:

Sponsored Links