HARARE – The promulgation of Statutory Instrument 127 (SI127) through presidential powers last Friday is an inflationary timebomb, ENN reports.
Although the government’s intention was to tame the runaway parallel market rate, which is trading at a 50% premium to the auction-based exchange rate of US$1: ZWL85, businesses have responded by increasing their local currency prices to hedge against any potential losses. On the other hand, the restrictive laws have increased the US dollar prices of goods and services by a 50 per cent margin, impliedly driving away consumers from formal trade to informal markets. The move will make Zimbabwean goods more expensive and may redirect the available foreign currency towards cheaper imports, at the detriment of Zimbabwe’s local industry and retailers.
To date, the local currency has depreciated by an average of 81% on the parallel market since January 2020.
In response to SI127, below are comments from Zimbabwe’s leading voices;
“The attempt to physically subdue parallel market is pure insanity and anti-logic” – Tendai Biti – former Zimbabwe finance minister.
“Businesses have been given two weeks to regularize their systems so that they can comply with the SI on the receipting of goods and services in either foreign currency or local currency….” – Reserve Bank of Zimbabwe.
“People are focusing on the SI, on its impact on business and they are forgetting that the SI is just the government somehow confirming to you that the auction exchange rate is not the exchange rate, otherwise there is no need to deviate…” – Christopher Mugaga – Zimbabwe National Chamber of Commerce CEO.
“As business, there is a huge worry that it seems too close uncomfortably to price controlling.” – Denford Mutashu – Confederation of Zimbabwe Retailers president.
“It is impossible to control the exchange rate through legislation…” – Chenaimoyo Mutambasere – Economist.
“Industry is astonished and a response to the statutory instrument will be out on Monday…” – Sekai Kuvarika – Confederation of Zimbabwe CEO.
“It is quite easy to stop this indiscipline, more so given that the Reserve Bank of Zimbabwe is the source of both local and foreign currency which feeds into the industry and commerce, partly through the auction system” – George Charamba – presidential spokesperson.
“One general rule that I have learnt purely by experience as a Zimbabwean is that there is positive correlation between more decrees to control the foreign currency (forex) market and the expansion of the parallel (black market”. Alex T Magaisa – Legal Practitioner.
Effectively, the business has raised a red flag against the government of Zimbabwe on SI127, at a time government is seeing the intervention as a panacea to the local currency confidence crisis, which is confirmed by a 50 per cent premium on the auction exchange rate by parallel market foreign currency traders. SI127 is a fender bender between the two economic drivers – the formal sector and government, with only one outright winner – the informal sector. It is not surprising to note that the Reserve Bank of Zimbabwe has gone against the dictates of the decree by giving businesses a grace period of two weeks to comply with the new currency restrictions in what analysts have seen as a naive government dragging its legs in fear of a ‘Black Week’ for the economy.
To download the full Statutory Instrument, click here.