EDITORIAL COMMENT: A rand budget

Source: EDITORIAL COMMENT: A rand budget | The Financial Gazette July 28, 2016

THE Reserve Bank of Zimbabwe (RBZ) and government have clearly explained their disdain for widespread use of the United States dollar by locals under a hard currency regime, saying use of the greenback has been detrimental to the economy.
The reason, they argue, is that people are using the US dollar as a store of value, and that foreigners have used Zimbabwe as a hunting ground for the currency since the country adopted a multiple currency regime in 2009.
Consequently, there has been a depletion of the stock of US dollar notes in the economy, which has been exacerbated by a widening trade deficit, which has essentially amounted to an export of cash.
Moreover, the strength of the US dollar has made Zimbabwe a high cost producer and a very expensive tourist destination; it has also been “a fertile ground for capital flight and externalisation”.
Government and the central bank argue that there should be equal or even more widespread use of other currencies, particularly the South African rand, in local transactions.
RBZ governor, John Mangudya, says over 40 percent of Zimbabwe’s exports are to South Africa and around 60 percent of imports are from South Africa.
Around 70 percent of tourists to Zimbabwe come through South Africa. As such, he argues, South Africa is an important trading partner to Zimbabwe and a major source of revenue.
But he notes his dejection as well as that of government over “the currency utilisation levels under the multi-currency system (which) has continued to be skewed towards the US dollar”.
In 2009 when the country dollarised its economy, usage of the US dollar was at par with that of the South African rand at 49 percent apiece. Usage of other currencies was at two percent.
By 2013, usage of the rand and the dollar were at 50 percent each, completely eliminating the use of other currencies.
But the use of the South African rand began to fall in 2014, hitting 40 percent against 60 percent for the greenback, whose usage surged to 70 percent in 2015 while that of the rand declined to 30 percent before collapsing to five percent by June this year. US dollar usage had peaked at 95 percent by June.
It is interesting to note that while government is bitter over preference for US dollars by Zimbabweans, it is oblivious of its own penchant for the American currency. Ever since dollarisation, government has consistently presented its national budget in US dollars.
State institutions such as the Zimbabwe National Roads Authority have rejected payment using the South African rand or any other currencies for tollgate fees and other statutory obligations by the public. Only recently did they start accepting the rand and other currencies at tollgates.
It is easy to recognise that the public will always take a cue from government. By sticking to a US dollar budget, government is simply indicating that the greenback is the currency of choice.
Finance and Economic Development Minister, Patrick Chinamasa, will be presenting his fiscal policy review in a few weeks. We hope it will be denominated in rand terms to show government’s commitment to its preference for the rand.