THE National Competitiveness Commission (NCC) says the Government should continuously apply more effort towards building public confidence in relation to stabilisation of the local currency so as to improve local industry’s competitiveness in this dual currency environment.
This comes as the government recently instituted a cocktail of measures through the monetary policy, where it introduced gold coins to the local market as an investment vehicle mainly for value storage against inflation coupled with higher interest rates.
The measures have been commended as they became an almost instant antidote, stabilising foreign currency exchange rates, particularly on the parallel market that had run amok.
The Government, however, remains with a mammoth task to instill confidence in business and the general public.
According to NCC, the Government should do more in order to get buy-in on the initiatives from the public given that Zimbabweans have no history in this type of investment and that the country is still nursing wounds from the 2008-9 hyperinflation, where investments and deposits lost value overnight.
Zimbabwe’s macroeconomic environment went through a turbulent second quarter in 2022 and marginally into the third quarter, a position that saw massive local currency deterioration, which threatened the country’s competitiveness in the process compared to its regional counterparts.
Local currency resultantly shed 70, 23 percent of its value against the greenback in the first half of 2022.
NCC is of the view that a relatively stable foreign exchange rate coupled with falling levels of inflation, gives the country a competitive advantage as this reinforces macroeconomic stability.
“Government is urged to ensure convergence of the auction, and Willing Buyer Willing Seller exchange rate to close the gap between the official and parallel market rates if free funds are to be unlocked from individuals and corporates. Otherwise, the Zimbabwe dollar will continue to be overvalued on the official exchange rate thereby discouraging trading in the formal market,” said NCC in its January to August inflation and exchange rate analysis.
As part of mechanisms to enhance the strength of local currency NCC implored the Government to stimulate local production in order to substitute imports which will save as a buffer and improve the country’s immunity to recurring external shocks.
Failure to create that shock absorbing mechanism will perpetuate the country’s exposure to the global jolts, which might increase the country’s vulnerability to external pressures, destabilising the country’s macroeconomic environment in the process thereby negatively impacting local industry competitiveness against comparator countries.
“Lately the Government has taken measures to control liquidity in the local economy and they have been effective in halting the devaluation of the local currency on the parallel market rate although I do not think this is a long-term solution at all to the real problem,” said Eddie Cross an economist as he called on the government to craft measures that would ensure longevity of the currently enjoyed stability in the economy.
Also, NCC urged the Government to prioritise improvement of the regulatory environment as it has been impeding business, national competitiveness, and discouraging investment. To buttress this the commission hinted at the need for continued stakeholder dialogue and consultation to discuss macroeconomic issues and challenges faced by businesses and proffer recommendations that enhance national productivity and competitiveness.