eBusiness Weekly
Business Writer
The Zimbabwe dollar remained range bound, although easing marginally against the United States dollar during Reserve Bank of Zimbabwe managed foreign currency auction on Tuesday, trading 0,004 percent higher at 81,3531 compared to last week’s 81,3499.
The official foreign currency exchange rate has gone up for the first time in weeks, albeit marginally, but experts say an observed trend in the determining of a ‘real exchange
rate’ is the factor of depreciation, which is both expected and desired.
“I think we will continue to see stability,” said economist Eddie Cross, “because that reflects the fundamentals.”
Key to the fundamentals indicated by Mr Cross has been Government’s deliberate efforts at expenditure containment.
Through the Transitional Stabilisation Programme (TSP), which is coming to an end this year, the authorities have managed to curtain both the country’s fiscal and current account deficits.
Data from Treasury shows that fiscal deficit as a percentage of gross domestic product (GDP) declined from -10,5 percent in 2017 to a surplus in 2019, and with almost balanced budget in 2020.
And the current account improved from a deficit of US$1,4 billion in 2018 to a surplus of US$311,2 million in 2019.
Economic analyst Persistence Gwanyanya concurs:
“Of course sustenance of this stability is dependent upon the determination by both RBZ and Treasury to contain money supply growth, which is the major driver of currency stability so far.
“Importantly, containing money supply growth hinges upon fiscal discipline by Treasury. It is actually fiscal indiscipline that got us into hyperinflation around 2008, which is why the new crop of economic managers have declared war against this economic adversary,” he said.
“All indicators on the ground suggest that Treasury is determined to continue with tight fiscal policy stance, which is encouraging. Infact the market is actually feeling the heat from this fiscal stance to achieve surpluses as a way of rebalancing the country’s fiscal position.”
Tuesday’s auction saw the highest number of bidders, with total bidders on the main platform rising to 274 from last week’s 238. This week 238 bids were successful.
The increased competition on the auction market drove the highest bid to $89 from $87,1 last week, while the lowest accepted bid also rose to $80 (from $79 previously). On the SMEs auction, the highest bid remained at $86, although the lowest successful bid rose to $79,9 from $79 last week.
Total bids on the SMEs board remained at 146.
Total foreign currency allocation was lower at US$27,8 million from US$28, 7 million, with the main auction accounting for US$26,1 million. SMEs took up US$1,67 million.
The raw materials segment accounted for the bulk of the allotments with US$10,45 million on the main auction and US$445 902 on the SMEs board.
Machinery and equipment came in second with US$4,3 million on the main and US$237 171 on the SMEs. And consumables came in third on the main auction at US$2,7 million. On the SMEs section, consumables took up US$454 901.
Although companies are accessing foreign currency from the auction system, a large number of firms are still “double-dipping” by pegging the prices of their goods or services on the parallel market, resulting in pricing distortions in the market.
“Some shops are pricing their products higher in local currency by using the parallel market determined exchange rate, thus forcing buyers to opt to pay in US dollars instead of local currency.
“The implied parallel market rates are also not uniform among the different suppliers of goods,” noted the Zimbabwe Economic Policy Analysis and Research Unit (ZEPARU) in its Economic Barometer Report for September 2020.
