The auction system is not going anywhere, Reserve Bank of Zimbabwe (RBZ) governor Dr John Mangudya has said, adding the platform will be sustained as the preferred mechanism of formally allocating foreign currency to the market.
Speaking during the chief executive officer (CEO) roundtable virtual seminar last week, the central bank chief said even sceptics must now see that the auction system was not and has never been a fluke and is here for the long haul.
Dr Mangudya also told this publication in an interview last week that the auction system had disbursed about US$1,14 billion for key imports like raw materials, fuel, machinery and equipment since inception.
The central governor said companies must not put themselves under unnecessary pressure by over ordering and stampeding each other to get foreign currency from the auction market, as funding will always be available.
The central bank is getting health inflows of hard currency from the 40 percent mandatory export surrenders and liquidations from 20 percent of all retail sales conducted in the country using foreign currency.
Further, the Government will now liquidate at least 15 percent of its total foreign currency receipts that it collects through all fees, levies and taxes that are paid for in hard currency; this as a way to support the auction system.
And in order to clear backlogs of auction bids that were allotted but have yet to be funded due to liquidity issues, Dr Mangudya said last week that banks will retain half the amount from the 40 percent mandatory export surrender.
Dr Mangudya said about 95 percent of imports into Zimbabwe were now being financed through the auction, limited interbank activity and foreign currency accounts (FCA) while the balance of only 5 percent came from elsewhere.
The governor said this means that the auction system was sustainable and is working. It has also emerged though that as local businesses started getting rightly priced forex from the auction, many went on an (imports) spending spree.
Many companies, Dr Mangudya said, that are obtaining foreign currency from the auction market now unnecessarily maintain excess orders and come to the auction market every week thinking the auction will one day be gone.
“They are over ordering their raw materials in anticipation that this thing (might not be there tomorrow) because many people think that it (auction market) is a fluke,” Dr Mangudya said at the seminar.
The central bank governor, however, assured the nation saying there was no need for any business or anyone running a business to over order because the foreign currency will continuously flow and be available.
He said the monetary authorities were happy about the southward direction that inflation is taking, since the introduction of the auction system in June last year, as well as the stability of the Zimbabwe dollar.
Monetary authorities, Dr Mangudya said, were not concerned about rates convergence, but making sure that inflation drops to sustainable levels in line with the regional benchmark.
The central bank expects that Zimbabwe’s once galloping inflation (annualised) will plunge to the SADC benchmark threshold of between 5 percent and 7 percent by the fall of next year.
On account of policy measures the Government and RBZ are implementing, Dr Mangudya said they expected inflation to fall to between 10 and 18 percent by the end of this year.
Zimbabwe’s annual inflation shed 45,85 percentage points in April to 194,70 percent, as the rate of increases in prices of goods and services keeps trending down. According to data from the Zimbabwe National Statistics Agency.
“When you deal with inflation, it brings (economic) stability and it is good for savers, investors and it is good for consumers because the currency will be stable therefore, it is good for everyone,” Dr Mangudya said.
Dr Mangudya also said the central bank will work hard to ensure that the country’s financial sector stability, help banks to offer digital services and avoid fall into traps of money laundering and financing terrorism.
The governor said the economy was now firmly on a sustainable path to recovery and growth, pointing out that Zimbabwe’s economy had since exited the period of fragility around September-October last year.
A sign of an improving economy, he said banks were now sitting on US$1,2 billion in general reserves, which they could use to lend to productive sectors and make healthy profit margins without borrowing outside the country.
To maintain the prevailing macroeconomic stability and ensure sustainable growth, Dr Mangudya said the mentality should now shift towards “production, production and productivity”.