From Golden Sibanda in Dubai, UAE
Zimbabwe’s economy is in a far better position than it has been in a long period, Secretary for Finance and Economic Development George Guvamatanga has said, citing the strong external sector position, with total foreign currency available totalling about 10 months import cover, and the healthy fiscal and monetary situations as evidence.
This dovetails into the forecast by Finance and Economic Development Minister Mthuli Ncube that the economy will grow by 7,8 percent this year, revised upwards from 7,4 percent predicted in November last year, driven by a bumper harvest, decent global metal prices, hence strong exports, and more construction happening across the country.
Mr Guvamatanga said the balance between the key economic fundamentals would, ordinarily, lead to a more stable and stronger exchange rate, contrary to what is happening where the local unit lost some ground against the greenback on the black market.
While the exchange rate remains largely stable on the formal market at about $88 per US$1, the rate has depreciated to as high as $170 per US$1 on the black market, at the seller’s rate, which is far higher than the buyer’s rate. However, the black market appears to have peaked and started retreating slightly.
Mr Guvamatanga said the authorities were aware of the factors causing the volatility and were in the process of fixing them.
The RBZ last week held meetings with business leaders and reached a number of concessions to deal with exchange rate instability on the black market and its potential negative effect on price, as this could put many goods and services beyond the reach of low income groups.
The central bank highlighted that there was no basis for exchange rate volatility in an environment where the key fundamentals were strong. The bank shared similar sentiments as Mr Guvamatanga that the issues affecting the exchange rate centred on behaviour not economic factors.
Earlier this month, the bank named and shamed a number of individuals allegedly abusing mobile bulk payer lines to illegally trade in forex, thereby fanning rate instability.
Exchange rate volatility, reined in when the Reserve Bank of Zimbabwe launched the foreign currency auctions last year, helped in the discovery of a market rate, stabilised prices and inflation; but some price increases have lately threatened to dilute the gains.
Speaking in an interview with The Herald in Dubai, United Arab Emirates, after touring Zimbabwe’s pavilion at Expo 2020 Dubai, Mr Guvamatanga said the fact that the economy was in a better condition than it has been in a long time would be a gross understatement .
“To say that we are in a better position is actually an understatement. I think we are in a very great position. I think if you look at our trade numbers, which were released by the monetary authorities, which provided the numbers as at August 7, actually showed that our exports have grown by over 36 percent year on year, largely driven by strong global commodity prices as well as diaspora inflows,” Mr Guvamatanga said.
The growth in exports, Mr Guvamatanga said, had resulted in Zimbabwe recording a positive external sector position. While imports have similarly grown during this period, their increase has been slower than the inflows of US$5,4 billion and exports of around US$3,8 billion.
The national Treasurer said this scenario had culminated in a surplus of more than US$1,7 billion on the current account, which was available within banks as ‘hard currency’. We are holding over US$1,7 billion, so it is the strongest external position we have had over many years.
“So, we have also been fortunate to receive special drawing rights or the SDRs from the International Monetary Fund. So, if you . . . look, the US$1,7 billion that is sitting in foreign currency accounts, you take the US$1 billion we have received as well from the IMF and you add to the Forex cash in circulation in Zimbabwe, we easily have US$3,5 billion, US$4 billion of cash.
“And if we were to convert that into import cover , that is more than 10 months of import cover; so Zimbabwe’s external position is very strong right now.
“On the fiscal side, I think we have been living within our means for the past three years. We as Government have not in any way gone to borrow from the Reserve Bank, which had actually been our problem in the past. We have not borrowed even one single dollar from the Reserve Bank, he said.
Mr Guvamatanga said Zimbabwe currently was in a solid external position, healthy fiscal situation and strong monetary position.
“All those signs, under normal circumstances, should actually be leading to a strong exchange rate, and not some of the instability that we have been seeing in the market, but we know what is pushing the instability and we are attending to those issues,” he said.
Mr Guvamatanga said Zimbabwe had come a long way in terms of exchange rate management, culminating in the adoption of the weekly auction system, which had said was an ‘open market’ price discovery system.
“We are also seeing quite a big range of Zimbabwean products now available in our shops and on the shelves of most retail outlets,” Mr Guvamatanga said.
Commenting on Expo 2020 Dubai, Mr Guvamatanga said Zimbabwe had a land bank which was ripe for organic production of food. He said the country had capacity to produce enough food to feed the whole world with organic foods.
“So that is one area of interest within agriculture, where I would expect investors to come through and invest. We also have renewable energy opportunities.
“Obviously, we have other sources of energy, hydro, thermal and solar, but we actually want to see more investors coming through and investing in the renewable energy sectors.
“We can talk about mining the whole day, in terms of opportunities available in Zimbabwe and how endowed with various key minerals as a country we are, so there are very strong opportunities. The enquiries that have been coming to ZIDA are very much well spread across all the various sectors of the economy.”
He commended Expo 2020 Dubai Commissioner General Ambassador Mary Mubi for putting up a great showcase in the pavilion.