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There is a need for relevant authorities to heed President Mnangagwa’s call to address inefficiencies and corruption on the foreign currency auction system to avert a potential currency instability, analysts have said.

The analysts were responding to critical issues raised by the President during the State of the Nation address he delivered on Thursday.

President Mnangagwa acknowledged there was need to adequately fund the auction system and to enhance efficiencies.

His remarks come on the back of growing concern of gross abuse of foreign currency obtained from the auction system and delays in the allocation of the funds.

Lately, there have been reports on retailers and manufacturers getting money from the auction system, but insisting on US dollar payments or pricing goods and services using black market exchange rates.

A recent investigation by the Zimbabwe Energy Regulatory Authority also revealed “massive” abuse of Zimbabwean dollar fuel facility by oil firms insisting US dollars payments when they are accessing foreign currency through the auction system.

On the other hand, concerns have been raised over the longer allocation period and mounting backlogs of allotted funds.

“Going forward, my Government will ensure that the platform is adequately resourced and that the relevant authorities enhance efficiencies within the system,” the President said.

Echoing the President’s sentiments, Economics professor Gift Mugano, said it was critical that relevant authorities addressed the challenges besetting the auction system.

“The auction system is not functioning very well as noted in the State of the Nation address; rather it is holding on a thin line, ” Prof Mugano said.

“I would want to see the authorities dealing with the corruption on the action system and corruption in the foreign currency market; I would want to see how the supply of foreign currency can be addressed to make sure that we have enough to support the auction system. More importantly, I would want to see a more liberal exchange rate,” Prof Mugano added.

At the last auction, the Zimbabwe dollar traded at $88,55 against the United States dollar, way below about $170 on the black market.

This has triggered a wave of price increases as most goods and services are priced using the black market rates, even by firms and individuals getting the money from the auction system.

Another economist Mr Persistence Gwanyanya, said while there were notable inefficiencies and corruption on the auction system, challenges with the exchange rate were mainly “behavioural issues.”

“Our economy is in the hands of a few (and) the behavioural issues of those few are having a significant bearing on stability,” he said.

“We have also seen behavioural issues being a major driver of instability, and Reserve Bank of Zimbabwe has stern warnings to elements that were perpetuating serious activities to the detriment of currency stability,” said Mr Gwanyanya.

On Thursday, the Government said it will conduct audits and suspend licences for businesses pricing using black market foreign currency. Two weeks ago, dozens of people and some company executives were arrested for illegally trading in foreign currency.

Mr Gwanyanya said while the President spoke on economic stability, he highlighted potential instability on the currency front.

“Even growth at the current status, has the potential to upset instability; so it may not be result of mismanagement of the economy or a reflection that fundamentals are not right, but would be a reflection of the structural weaknesses in our economy, so it can be upset by growth itself.”

Economist Dr Prosper Chitambara, said authorities should allow the market to govern the foreign exchange price as the amount being availed was not meeting the demand.

“The major issue has to do around the issue of price discovery, exchange rate determination especially within the context of increasing demand for foreign currency that is not being met that is not being supported by available supply there is a huge gap actually,” said Dr Chitambara.

He alluded that price determination by the market would encourage more players to entrust their foreign currency into the formal system considering significant amount of foreign currency was circulating in the informal sector.

“Many businesses have argued that the pricing has not been fully reflective of those dynamics in terms of demand and supply, once the issue of price discovery is addressed that will allow market dynamics to have a greater sway then that can also increase confidence, that will also unlock even greater inflows of foreign currency into the official channel. My understanding is there is a lot of foreign currency in people’s accounts but most people are not willing to sale,” said Dr Chitambara.

On the economic performance, Prof Mugano said the positive growth rate maintained by the President were achievable on the back of good harvest and improvement in the availability of local products due to increased local production.

The interventions in the agriculture sector by the Government and private sector has anchored economic growth, Mr Gwanyanya noted. “What is important is the positive vibe in the economy and the measure of confidence with progress made so far.”

In terms of infrastructure, “it is there for everyone to see that progress has been made,” said Mr Gwanyanya. “For example, roads and, dams construction and other projects.”

“What is key is the determination and resolution to fund some of these projects. The projects have been done with local resources, reinforcing commitment to support the projects.