Forex auction sinks US$1,5bn into economy

Source: Forex auction sinks US$1,5bn into economy | The Sunday Mail

Forex auction sinks US$1,5bn into economy

Business Reporter

Importers got more than US$1,5 billion for raw materials and other critical requirements from the Reserve Bank of Zimbabwe (RBZ)’s weekly foreign currency auctions, which began on June 23 last year, making the platform the major source of foreign currency for the productive sectors of the economy.

But the central bank acknowledges it has not been smooth sailing in the past 12 months.

Latest figures indicate that the bulk of the funds went towards procurement of key raw materials, machinery and equipment, pharmaceuticals, retail and distribution, and consumables.

Reflecting on the performance of the platform as it turned a year on Wednesday, RBZ governor Dr John Mangudya said the auction had brought stability in the exchange rate and prices.

While the country experienced exchange rate volatility during the first half of last year, the local unit has since stabilised at $85 against the US dollar.

Inflation has been progressively declining. The auction is now regarded as the market’s dependable and preferred source of foreign currency for registered operators.

Allocations to SMEs and big businesses have recently been averaging more than US$45 million per week.

“Going forward, it is the desire and aspiration of the (central) bank to strengthen the auction system to ensure it achieves greater heights to grow the economy and reduce inflation,” Dr Mangudya said.

Annual inflation is projected to decline to between 102 percent and 103 percent this month, and further drop to 55 percent by July.

Overall, a single-digit rate in expected by year-end. The RBZ encourages businesses to keep accepting payments in foreign currency to ensure its continued circulation in the formal sector.

Monetary authorities are confident the economy will grow by 7,4 percent this year.

“The stability has helped the economy to grow. Local businesses now contribute 65 percent of the produce sold in the local market, thereby cutting products that are imported,” explained Dr Mangudya.

Economic stability has been occasioned by the ironclad grip on fiscal and budgetary discipline, which saw the country achieve a budget surplus in the first quarter.

The biggest challenge the central bank has faced since launching the auction system, Dr Mangudya added, has been non-compliance by intended beneficiaries of the platform.

“We say one bid per client, but some businesses bring multiple bids through the usage of shelf companies, thereby defeating the rule of the auction system.”

Some beneficiaries also use the black market rates to price their goods and services, which is in direct contravention of Statutory Instrument 127 of 2021.