Shut down auction system, US$5m allocation too little – top economist – NewZimbabwe.com

By Reason Razao

ECONOMIC analyst Gift Mugano has called for shutting down of the Central Bank’s foreign currency auction system after Finance Minister Mthuli Ncube in his fresh measures said it will be limited to US$5 million.

Mugano added the ‘meagre’ limit highlighted the economy had dollarized and left no need for the system introduced in 2020 to give fair value of the ZWL against the U.S. dollar.

In the new series of measures aimed at stabilising the economy which came weeks after another policy statement, Treasury said the government agencies will ‘substantially’ collect fees in ZWL and all customs duties are now payable in local currency except designated ‘luxury goods’.

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“Since treasury didn’t budget for the payment of the 25% export retention, where is the money going to come from,” Mugano queried.

“Auction allocation limited to a max of US$5m per week? That little? Why can’t you shut it down,” he added.

“In view of the fact that the auction system has been reduced to US$5m per week, isn’t this clear evidence that the economy has dollarised.”

In recent pronouncements, Ncube ordered the liquidation of export proceeds earned from exports as a strategy to push holders of huge idle US$ deposits to circulate their money into the economy and avoid artificial shortages.

According to Mugano, the move will likely promote arbitrage.

“Isn’t that promising to liquidate foreign currency retained by exporters after 90 days is  going to encourage reckless or wasteful spending.”

Mugano highlighted policy inconsistency saying on one hand treasury wants to promote ZWL but on another is saying duty on fuel will be strictly USD.

Further, he raised red flags over Treasury’s policy pronouncements under the purview of the RBZ.

Mugano however applauded some of the economic stabilization measures, particularly timely payments on the auction system and efforts to promote the use of ZWL.

“Good policy measures announced today eg reducing IMMT, implementation of the real Dutch auction system (timely payment, notification of funds available in advance & selecting the highest bidder), promotion of use of ZWL.”

Former cabinet ministers, Jonathan Moyo and Walter Mzembi applauded the move to fully accept the local currency saying it shows the government’s willingness to back the ZWL.

“Well done and kudos to Prof. Mthuli Ncube. With your statement tonight, you have reverted to the right toolbox and demonstrated that at  least the government is ready and willing to put its mouth where its money is, principally to shore up the Zim dollar, which has come under untold,” Moyo said.

Added Mzembi: “My take on his latest pronouncements is he (Mthuli Ncube) has done something right. Reasserting local currency as transactional currency of choice by the Government. Good confidence measure.

“It is Govt itself that has undermined the RTGS insisting on US$ payments for Services rendering its own currency impotent. A recalibration to its own Currency inside the basket of currencies is a stabilising measure,” Mzembi said.