Business Review Meeting Between The Reserve Bank Of Zimbabwe and Captains of Industry and Commerce on Measures to Promote Price Stability Within The Economy
The Reserve Bank of Zimbabwe (the Bank) and leaders of the Zimbabwe business community met on 21 January 2022 to take stock and review resolutions and commitments made at their meeting of 11 October 2021.
The consultative engagement was for parties to deliberate on how to enhance price stability within the economy. The following key developments during 2021 were noted: –
(i) The outturn for 2021 was generally good with year on year inflation ending the year at 60.7% from 348.6% recorded in 2020.
(ii) Local manufacturing production went up and around 80% of products on the market were locally produced.
(iii) The auction system continued to play its key role of being a dependable source of foreign exchange for the key sectors of the economy.
(iv) Government remained focused on fiscal sustainability and did not borrow from the Bank.
(v) The Bank contained the growth of money supply to anchor inflation and exchange rate expectations.
(vi) The country’s monetary system is largely constituting of local currency, with 56% of banking sector deposits being local currency, with the balance of 44% being foreign currency. In this regard, the current practice by business of competing for foreign currency sales through using a penal exchange rate to discourage consumers from paying in local currency is punishing consumers and stoking adverse inflationary pressures, which is detrimental to the economy at large.
(vii) Agricultural outturn improved with significant deliveries and stockpiles of maize and wheat sufficient to meet domestic consumption requirements. (viii) Foreign currency receipts from exports, remittances and loans reached US$9.7 billion in 2021.
(ix) The provisions of SI 127 of 2021 were refined, and incorporated in the Finance Act no. 7 of 2021, to focus on three areas as agreed at the 11 October 2021 meeting, that is, to deal with abuse of the auction system, to focus on regulating manipulation of the exchange rate and to foster adherence to the Bank Use Promotion Act.
Following robust and open discussion and contributions, the parties made the following resolutions to stabilise the exchange rate and limit its pass-through effect on inflation: –
- Government and the Bank should come up with strategies to enhance the attractiveness of the local currency and strengthen its demand in the context of the multicurrency system currently in place.
- The Bank should continue to refine the foreign exchange auction system and to timely fund auction allotments in line with the auction rules.
iii. As a way of continuing with efforts to stabilise the economy, there was a need for everyone, through a collective responsibility, to exhibit good leadership and exercise restraint on the volatility of the foreign exchange rate.
iv. The Bank should continue fighting inflation through restrictive monetary policy and building foreign exchange reserves as a way of augmenting the defence of the value of the local currency.
- The relevant regulatory authorities should continue to carry out enhanced due diligence on auction participants and monitor the use of funds obtained through the auction and come down strongly on those who submit fake documents (including invoices and bills of entry) and resort to suspension for periods not less than 6 months and blacklisting.
vi. Banks are encouraged and reminded not to be complicit with their delinquent customers.
vii. Business must ensure compliance with the provisions of Statutory Instrument 127 of 2021 now embedded in the Finance Act (Amendment Number 7 of 2021), with emphasis on avoiding abuse of auction rules and funds from auction allotments; exchange rate manipulation or currency attacks; and Non-compliance with the Bank Use Promotion Act;
viii. The Government has to come up with appropriate incentives for exporters to improve production and productivity;
ix. The Financial Intelligence Unit (FIU) should continue penalising currency manipulators and abusers of foreign currency auction rules and breaches of the Bank Use Promotion Act.
- The Government has to continue with efforts to reduce the level of informalisation in the economy and to maintain fiscal consolidation.
It was agreed that continued dialogue between the authorities and business remained paramount in order to maintain the momentum of stabilising the rate of inflation, the foreign exchange rate and the economy in general, as well as building confidence in the local currency.