RBZ stems forex backlogs

Source: RBZ stems forex backlogs – The Zimbabwe Independent

THE Reserve Bank of Zimbabwe (RBZ) has stepped up efforts to create prices and economic stability after clearing the bulk of outstanding foreign currency auction backlogs, while about 300 manipulators of the system were punished by the Financial Intelligence Unit (FIU).

Reserve Bank of Zimbabwe (RBZ)

The forex auction system has been subject to abuse by rent-seekers involved in murky deals that ultimately bleed the economy.

Some of the forex auction offenders, who were punished by the FIU, have a well-knit network in the banking sector and foreign firms. Companies, from June 2020, have been accessing foreign currency from the RBZ auction system but in many instances, the apex bank lagged behind fulfilling the allotments.

RBZ governor John Mangudya told the Zimbabwe Independent that the central bank cleared the backlog this week while residual payments will be done before the end of this month.

RBZ governor John Mangudya

He assured the market that the next step was to allocate funds within the central bank’s capacity to settle to avoid backlogs.

The forex auction was established in June 2020 to manage greenback shortages, which have pushed companies to the black market for capital to import raw materials and implements.

The platform had allocated about US$2 billion at the end of last year, according to RBZ’s February 2022 Monetary Policy Statement.

However, the central bank has been in the eye of a storm after struggling to fully fund weekly allocations of about US$45 million.

The Confederation of Zimbabwe Industries (CZI) warned last year that manufacturing operations were curtailed by backlogs, which were precipitating production cutbacks and high production costs.

In August last year, the CZI estimated that US$200 million was outstanding.

The RBZ had by this week carried out 101 forex auctions.

“The 94 to 99 auctions have been cleared to become current, while we are working expeditiously to clear by the end of July the residuals (backlogs from allotments) before auction 94,” the central bank chief said.

He indicated that along with the clearance plan, about 300 delinquent firms had been netted in a crackdown to arrest currency manipulation.

“The entities that were fined by Financial Intelligence Unit (FIU) and exchange control paid (fines and were from) across all the sectors of the economy. They committed various offences ranging from misuse of forex obtained from the auction system to exchange rate manipulation,” Mangudya told the Independent.

“The fines are used to further capacitate the units that are involved in the monitoring and surveillance of financial transactions.”

But in a note to members released yesterday, CZI said the RBZ was struggling to clear backlogs.

It said firms were still depending on the black market for their forex requirements.

CZI called for a speedy resolution to the crisis to address high production costs and rocketing basic commodity prices that have been sparked by forex being assessed from the black market.

“The authorities once again (early this year) made the promise to clear the backlog, this time by the end of May 2022,” CZI said in a paper titled; ‘June 2022 Inflation and Currency Developments Update’.

“However, this date, like a few others before, has been missed as the backlog is yet to be cleared. The backlog puts pressure on the parallel market, as companies look for alternative markets of foreign currency in a bid to fill the void created by the backlogs. Successive failure to clear the backlog as promised, dents the credibility of corrective policy announcements.

“While the average annual inflation is 191,6% and the average month-on-month inflation is 30,7%, oil and fats have increased by far much more.

“On the same trend are bread and cereals, which on a month-on-month basis increased by 36%, well above the national average. The price of cooking oil and bread is thus now out of reach for many people, especially those earning in local currency, despite them considered basic products by many consumers,” CZI said.

However, government sources have accused business of increasing prices of goods pegged in United States by higher margins than the global trends.

CZI also warned that inroads achieved during Zimbabwe’s battles to arrest an inflationary charge have been ‘wiped out’ due to policy failures, and the country could be headed towards a ‘catastrophic’ out-turn.

“The month-on-month inflation rate for June 2022 raced to 30,7% from 21% in May 2022,” CZI said.

The lobby warned that recent ad hoc measures announced by firefighting authorities fell far short of the push required to cool off market jitters and rebuild the bleeding economy.

In May, President Emmerson Mnangagwa announced a series of measures including directing banks to stop lending.

But as markets revolted, government summersaulted and reverted to the status quo, as it relived experiences of the hyperinflation era, which was characterised with policy shifts and reversals.

These ended up frustrating investors after a string of corporate bankruptcies.

Back in 2008, hyperinflation hit the 500 billion percent mark and knocked off the Zimbabwean dollar.

The CZI warned that the possibility of another relapse into the hyperinflationary scourge were high.