Gvt to compensate individuals who had funds below US$1,000 as of end of Jan-19.
– In Feb-19, Gvt abandoned a 1-1 exchange rate peg of the Z$ to the US$, resulting in the exchange rate depreciating from Z$1 per US$to Z$2.5 per US$.
– The Z$ depreciation means depositors lost value of their deposits which at the time were viewed as at par in US$ terms.
– At the time of the conversion of the deposits, total deposits which were believed to be at 1-1 to the US$ were Z$8,965m.
– This is not the first time Gvt has compensated depositors for loss of value. In 2015, depositors were also compensated following demonetisation of the Z$ during multi-currency period.
– These schemes could be a waste of resources as depositors require a stable and predictable economic environment, rather than to be continually compensated for loss of value.
Clearance of Foreign Currency Backlog
– Gvt undertook to clear Auction allotment backlog by end of May-22.
– FX allotment to be settled within 14-days period.
– The Auction to allot only available FX
– Lack of political will to implement agreed policy measures is eroding confidence in the economy.
– This pronounced exchange rate management framework was agreed a long time ago, and yet Authorities have not adopted it.
– The current economic meltdown could have been avoided had the Authorities implemented agreed roadmap on exchange rate management.
– As previously highlighted, the current overvalued ZW$ at the auction is creating a fertile ground for arbitrage and generating inflated demand for FX.
Continuation of a Multicurrency System
– The current Multicurrency currency system will remain in place.
– De-dollarisation process will be guided by economic fundamentals.
– The market is not yet ready for the adoption of the mono-currency system as economic fundamentals still fall short of the requisite benchmarks.
– Any premature introduction of the mono-currency will lead to further economic instability and market rejection of the local currency.
Willing-Buyer-Willing-Seller (WBWS) Foreign Exchange System
– The amount that can be traded under this system has been increased from US$1,000 per day to
US$5,000 or US$10,000 per week per individual.
– Retailers/Wholesalers are allowed to benchmark their pricing to the average WBWS exchange
– So far, the WBWS market has been skewed towards buying FX, which is not ideal.
– The WBWS exchange rate is also still low compared to the unofficial market exchange rate, making it difficult to attract significant sellers.
Reserve Money Growth
– Quarterly Reserve Money growth further reduced from 5% to 0%
– In the past, growth in Statutory reserves despite a 5% RM target growth was a sign that the monetary policy stance was not tight enough as deposits continued to grow
Differential Intermediate Money Transfer Tax (IMTT)
– 2% to continue to apply to local currency transfers
– Domestic foreign currency transfers to attract 4% IMTT
– IMTT has been a contentious Tax since it was first introduced as an attempt to capture the informal sector to contribute to the tax net, as well as harness resources for infrastructure
– Since then, IMTT is now used as a broad-based tax for both informal and formal sectors, to assist Gvt in raising its revenue
– The high IMTT effectively means that the market will avoid depositing the US$ into the Banking system.
– This will increase informalisation of the economy as transactions will be on a cash basis and outside the formal channels.
Foreign Currency Cash Withdrawal Levy
– Withdrawal of cash above US$1,000 will attract a 2% levy
– These measures are impediment for customers to use the banking channels and this works against financial inclusion efforts.
– This is an opportunity for banks to develop digital platforms to support US$ transactions.
– The customers will feel discouraged to use the banking system because of the attendant high costs
Settlement of FX tax Obligations in Local Currency
– Settlement of local currency Tax obligations will be at a WBWS exchange rate
– Following the introduction of WBWS, Gvt should immediately unify the Auction and WBWS exchange rate system.
– The existence of multiple exchange rate systems will encourage arbitrage activities and corruption.
Liquidation of the Surrender portion of Export Proceeds
– Liquidation of surrender portion of export proceeds will be at the WBWS exchange rate
– This is commendable as it will improve viability of generators of FX
– Major risk relate to the manipulation of the WBWS system, which will result in widening premium.
– Ideally, the auction system is no longer serving its purpose as it is a vehicle for arbitrage.
– Critically, continuation of Auction entails Gvt paying subsidy (which is the difference between the auction and the WBWS exchange rates) which is not budgeted for.
– The existence of a multiple exchange rate system only benefits the elite and is a major source of corruption and arbitrage.
Suspension of Third-Party Country Payment on Foreign Payments
– Third Party country foreign payments have been suspended
– This is to stem susceptible illicit financial flows
Govt Measures Will Increase Informalisation of The Economy As transactions Will Be On A Cash Basis And Outside The Formal Channels.