THE late disbursement of foreign currency allotments from the government-controlled foreign currency auction floors has been blamed for causing rampant price hikes.
Over the past few weeks, the Zimbabwe dollar has crashed by over 20% on the official market and more than 30% on the parallel market against the greenback, precipitating waves of basic commodity price hikes.
The situation is reminiscent of the market mayhem that rocked Zimbabwe between 2000 and 2009 leading to an economic depression.
A new report by the Competition and Tariffs Commission and the National Competitiveness Commission has revealed that the fall of the local currency is linked to long waiting periods for forex disbursements from the Reserve Bank of Zimbabwe (RBZ) auction system.
“Recent late disbursement of the foreign currency obtained from the auction system by the RBZ and failure to meet all their forex requirements at the same market has been cited by some stakeholders as key in determining their pricing models. Some stakeholders are claiming a time of up to 1 month before they can access their US$,” the report noted.
“This results in companies resorting to both their internal US$ sales and the black market for their foreign currency requirements. Reliance on internally generated US$ was inhibited by the obligation to surrender part of their domestic US$ sales which has now been reviewed in the new policy pronouncements.”
The study has further stated that companies are of the view that relying on the auction system rate for pricing will not enable them to restock, thus reliance on the parallel market exchange rate.
Currently, the Zimbabwe dollar is selling at $1 965,36 and $4 200 to the US dollar on the official and parallel forex markets, respectively.
- RBZ blocks Harare US dollar charges
- Industry cries foul over new export surrender requirements
- One stitch in time saves nine
- Banks keep NPLs in safe territory
Most businesses are opting for the higher premiums in the parallel foreign currency market.
As a result, the inadequate forex allocations have bolstered parallel market activity.
Early this month, government removed duty on basic commodity imports to allow for competition to force local prices down, but the study believes the move would trigger an increase in shelf occupancy by foreign commodities.
“Some products such as rice and salt are not locally produced in Zimbabwe but come into Zimbabwe in bulk quantities for local packaging and distribution. Despite the foreign basic commodities being subjected to various import regulations, such as import licences, tariffs, and logistical issues such as transportation costs and currency exchange rates, they still occupy some shelf space in local retail shops,” the report noted.
“With the removal of import licences and duties, their occupancy of shelf space stands to increase in the informal sector. This may have negative repercussions for local manufacturers, which will face stiff competition from foreign products and largely benefit those who are distributing products but not necessarily manufactured in Zimbabwe.”
It also said the liberalisation of basic commodities needed to be assessed from a foreign currency demand perspective.
This is because the anticipated increase in imports of basic commodities will lead to an increase in demand for foreign currency in the economy as traders take advantage of the duty-free import window.
However, this will prompt foreign suppliers to take advantage of this window to further increase their exports to Zimbabwe to access the highly-sought-after United States dollar.
Experts say the net effect will be an increase in outflows of the United States dollar like what transpired between 2014 to 2017 which led to foreign currency shortages in the country.
The move is expected to further depreciate the local currency.