Zimpapers Logo

Business Reporter

RESERVE Bank of Zimbabwe (RBZ) governor Dr John Mangudya has admitted that exporters, particularly mining companies, have been suffering from exchange rate losses due to disparities between the official and black market exchange rates.

Dr Mangudya made the admission at the Chamber of Mines annual conference in Victoria Falls which ended on Friday. 

He said the recent refinement of the foreign currency auction market to a true Dutch system was meant to reduce the “implicit tax” to the exporters’ surrender portion.

The term “implicit tax” is an indirect cost that results from a Government policy.

In February this year, the central bank lifted the export retention thresholds from 60 to 75 percent across all sectors of the economy including companies listed on the Victoria Falls Stock Exchange (VEFX), with the balance paid at the prevailing exchange rate.

The mining sector accounted for 75 percent of the country’s total exports in 2021 and 2022. Already up to April 30, the industry contributed 70 percent to the total export earnings.

This week, Finance and Economic Development Minister Prof Mthuli Ncube announced policy measures aimed at stabilising the economy, particularly the exchange rate, which will see full implementation of the real Dutch Auction System (timely payment, notification of funds available in advance, and selecting the highest bidder will improve transparency and efficiency in the trading of forex in the economy.

When the RBZ auction system was introduced in June 2020, it was expected to act a foreign currency price discovery mechanism that would eliminate the parallel market.

The bidding platform was supposed to be the Reuters Foreign Currency Auction Forex System (a real-time electronic trading platform between banks linked to the export payments control system). The weekly auction will now be limited to US$5 million.

In the last weekly central bank auction on Tuesday Zimbabwe’s currency weakened almost 36,4 percent against the US dollar with analysts saying this would lead to the “near or full convergence” of the official and the parallel market rates.

“The bank’s monetary policy stance strives to ensure that exporters get fair value for the surrender portion of their exports,” Dr Mangudya said. “Overly, overvalue exchange rate results in an implicit tax to miners on the surrender portion. The refinement to the auction system is designed to reduce the implicit tax.”

Economics professor Gift Mugano said the exporters were incurring huge losses as a result of exchange rate disparities. “Because of the gap between the exchange rates, exporters were getting roughly half of the ideal rate; so exporters loose on the back of that disparity of the two exchange rates,” said Prof Mugano.

“This makes exporters uncompetitive because they are being taxed indirectly since the Government is benefiting on the back of the differences,” added Prof Mugano.

The decision to confer full responsibility on the Treasury to fund foreign currency surrendered by exporters is designed to eliminate the creation of additional money, blamed for driving currency depreciation. The Treasury is now in charge of collecting the forex surrendered by exporters with the proceeds used to service the Government’s external loans.

Local banks will no longer hold foreign currency surrendered by exporters while all the liabilities to the banks will be settled through the Treasury. 

According to official sources, the central bank has been paying an average of US$60 million monthly on external loans.

At the prevailing official exchange rate, the Treasury will need at least $150 billion to pay foreign creditors the central bank has been servicing.

In an update on the operational modalities for the management of the surrender portion of exports proceeds, Dr Mangudya said management of foreign exchange from export receipts will continue to go through the normal banking channels with RBZ playing the pivotal statutory role of intermediation between banks and the exchequer.

“In that regard, the minister’s press statement is not intended to change the statutory requirements or merge fiscal and monetary policy jurisdictions.

 “The essence of the new measures is that the Government is now actualising the provisions of the Finance Act No. 7 of 2021, which, inter alia, provide for the take-over of external loans on the bank’s books.

“Government will provide the local currency required to purchase foreign exchange from part of the surrender portion of export proceeds for the purposes of servicing the external loans assumed by the State,” said Dr Mangudya.

He said the Government will alternatively use its own foreign exchange resources to settle the assumed foreign loans.

 “The bank shall, therefore, ensure that all foreign currency arrangements, entered into by and between both local and foreign financial institutions and the Republic of Zimbabwe, are fully respected and loan obligations are serviced in accordance with the covenants of the respective underlying facilities or commitments. 

This will ensure financial system stability and that there are no disruptions in the financial markets,” said Dr Mangudya.