The Reserve Bank of Zimbabwe (RBZ) says it will now abide by its own rules which it had violated for the greater part of last year after it failed to avail foreign currency to successful bidders within 14 days from the date of auction.
The Bank in a statement advised that it had cleared the backlog of foreign exchange allotments under the foreign exchange auction system largely as a result of improved foreign exchange inflows in the country.
RBZ governor Dr John Mangudya, indicated the bank will now abide by the foreign exchange auction rules and ensure that foreign currency is available to successful bidders within 14 days from the date of auction.
“This will go a long way in maintaining a stable foreign exchange rate and sustaining financial stability in the economy,” he said.
Due to low foreign currency inflows and reserves, the Central Bank has been struggling to supply adequate foreign currency which created a huge backlog which reached about US$300 million by August last year.
The auction was set up as a price discovery mechanism for the local currency as well as availing foreign currency to local companies needed for procurement of raw materials and retooling.
Economist Dr Reneth Mano, told Business Weekly this week that the clearing of the backlog brings confidence to business, but will be watching if the Governor will follow his commitment.
“The RBZ is actually confirming by its own admission it was violating its own rules that the auction disbursements were supposed to be done in 14 days. So for the past year they have been violating that.
“The commitment by the Governor that by this day, there are now going to be honouring the 14 days’ allotment period brings confidence to us as a business community and we will be watching that the governor is following his commitment,” he said.
Mano said the Central Bank was largely failing because they were selling more on the auction than what was released for sale from their coffers.
“Now that they have cleared the backlog, they now need to move to restore confidence in the RBZ management of the auction system in as far as honouring the successful bidders and paying them on time is concerned.
“As industry we will look at that and monitor to see there are no violations in a month or two,” he said.
He noted that the RBZ should avail information such as how much is available for auction and be put in the market and bidders will know how much to bid. It is just a signal on the supply,” he said.
However, Mano said there has been marked reduction of the volume of allotments on the auction, collapsing from as much as US$35 to US$40 million per auction session to US$12 to 15 million.
He said this has been a major bone of contention and if the auction is to be restored as a primary price discovery mechanism, the volume of that auction should not be less than 30 to 40 percent of the monthly requirements of importers.
“Right now it is degenerating into a minority market of no substance because most of the money is now being procured from the grey markets.
“The weekly auction is becoming increasingly insignificant relative to the weekly and monthly demand for foreign currency just for merchandised imports alone,” he said.
In a recent update, the Central Bank said it had allotted US$3,7 billion through the foreign exchange since its introduction in June 2020 with the bulk having been channelled towards importation of raw materials and machinery.
Economics Professor Gift Mgano, said clearing the backlog is a welcome development, but what people need to understand is that businesses have moved from the auction and are using their own generated cash.
“This is because our imports last year were US$8,2 billion against 2021 imports of US$7,2 billion. So we have increased our imports by US$1 billion, but the money given to companies from the auction has been dwindling, so how are we financing the imports because business is generating its own foreign currency,” he said.
He added that this shows there is now a significant portion of US$ in the economy and the policy makers, the Central Bank, now need to review some policy instruments which were biased against the ZWL which are now being weakened because we have now moved to a USD denominated economy.
Mgano said the RBZ now has the capacity to sustain the auction system in the positive due to improved foreign currency inflows.
“We got almost US$12 billion last year in foreign currency within the country. It is an active account which we will be getting money in and outside.
“We had almost US$3 billion dollars of remittances, so in terms of supply of foreign currency we are quite good so there is no reason for us to have a backlog,” he said.
Mgano said the economy is now largely dollarised and the RBZ now needs to scrap the 20 percent export retention threshold to encourage US$ deposits into the formal banking system.
“Most businesses are not depositing because of the export retention is resulting in massive exchange rate losses.
“The Central Bank needs to scrap the export retention so that there is no hindrance for deposits,” he said.
Another economist Dr Prosper Chitambara said the achievement by the Central Bank will enhance confidence in the auction market and also lessons the pressure on companies to go to the black market.
“This will stabilise the foreign exchange market and the macro economy environment,” he said, adding that the Bank should sustain the allocation of what they have which they have been doing for the past few months.
Meanwhile, Confederation of Zimbabwe Industries (CZI) president, Kurai Matshezha, said clearance of the backlog is a welcome development for industry.
“We confirm the back log has been cleared. We look forward to a system like that going forward and if it is maintained that way, it will be good for the economy,” he said.