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We're Yet To Discover The Real Exchange Rate - Finance Minister Ncube

We're Yet To Discover The Real Exchange Rate - Finance Minister Ncube

Finance and Economic Development Minister, Professor Mthuli Ncube, believes the country is yet to discover the real price of the Zimbabwe dollar nearly two years after launching the foreign currency auction system.

Zimbabwe introduced the system in June 2020 to address persistent macroeconomic instability from parallel market exchange rate volatility.

Authorities were convinced the auction system would facilitate and expedite proper price discovery, which would, in turn, stabilise the exchange rate and prices of goods and services.

Speaking in an interview on the sidelines of the Insurance industry’s meeting with Treasury last Thursday, Ncube said monetary authorities were still working to refine the auction market in order to discover the true value of the local currency. He said:

The country is in a good position, our current account position has been 4 percent in the positive for the past three years, which means we have more foreign currency inflows than outflows… so I do not understand why we are at this position, we are yet to discover the real exchange rate

You reckon we received SDRs (Special Drawing Rights equivalent to US$968 million from the International Monetary Fund) last year, so all in all we have a total of US$1.3 billion in reserves, so we need to interrogate the situation on the ground and refine the auction system.

Despite huge reserves held by Treasury, ballooning foreign current account balances and strong export receipts, Zimbabwe continues to suffer the impact of a volatile parallel market exchange rate.

The parallel market rate has been trading at a premium to the official exchange rate. A snap survey by The Sunday Mail Business on Thursday last week showed that manufacturers were pegging their prices at an exchange rate of around $240 to US$1.

Authorities and market watchers agree that some formally registered companies resort to buying forex on the parallel market due to:

1). the time it takes to obtain funds from approved auction bids.

2). Shortage of foreign currency which also results in disbursement taking longer than expected. There was a backlog of nearly US$200 million as of December 31, 2021.

Markets analyst Allen Dube said ultimately, the solution to the foreign currency situation was not borrowing but increased production, improved productivity and efficient mobilisation of domestic financial resources.

More: The Sunday Mail

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