Mthuli dangles incentives for Zimdollar use after dramatic tumble

By Miriam Mangwaya, Harriet Chikandiwa and Sharon Buwerime | NewsDay |

Finance minister Mthuli Ncube yesterday dangled some incentives to promote use of the tumbling local currency, and put a cap on the widening parallel market exchange rate.

The Zimbabwe dollar has been fast losing value against the greenback, trading at anything upwards of $230 against $116 on the central bank’s controlled auction system.

This has resulted in a spike in prices of goods and services, pushing many Zimbabweans deep into poverty.

Economists early this week warned that the country was on the verge of re-dollarising. Zimbabwe enjoyed relative stability during the US$ era before President Emmerson Mnangagwa re-introduced the Zimbabwe dollar in 2019.

Government has been insisting on its dedollarisation plan despite calls from the restive civil servants and other sectors of the economy to dump the local unit and move to more stable currencies.

In what analysts said exposed government’s fears over the collapsing Zimbabwe dollar, Ncube moved in to promote the local currency by stating that all mining royalties would now be paid in United States dollars up to a limit of 50% of royalties.

The public will also pay up to 50% duty and tax on imported vehicles in local currency, while domestic taxes due from exporters on their export receipts will be payable in both foreign and local currency .

Imported motor vehicle duties and taxes were previously paid in strictly United States dollars only.

Ncube said parallel market exchange rates had contributed to price instability in the country.

“All domestic taxes due from exporters on their export receipts are now payable in both foreign currency and local currency in their direct proportion to the approved export retention levels,” he said.

“Government, through various agencies, is presently seized with instituting various measures to enhance the formal use of the domestic currency. These measures are aimed at stemming illegal trade in foreign currency and its associated twin, that of parallel market benchmarking or indexation of prices of goods and services at parallel market exchange rates.”

Ncube said the developments had also resulted in the rapid growth of privately held foreign currency reserves, from levels around US$300 million in 2018 to over US$2 billion currently.

“Official reserves have also increased from less than US$100 million to over US$1,2 billion currently which includes the US$960 million equivalent in SDRs [special drawing rights] recently availed by the IMF [International Monetary Fund] to Zimbabwe,” he added.

In a vote of no confidence on the Zimbabwe dollar, some companies are now offering discounts for payments made in US$.

The Zimbabwe Congress of Trade Unions has called for US$ salaries to cushion public and private sector workers from the vagaries of inflation as the monthly poverty datum line has topped $70 000.

Economists who spoke to NewsDay Weekender expressed mixed feelings about Ncube’s measures to save the local currency, with some suggesting that Zimbabwe should simply redollarise.

Economist Cornelius Dube said: “It is a positive move. That way, we will have more demand for local currency, but the move is not enough. Government is now accepting or showing demand for the local currency and it’s also easier for the market to follow likewise because the government has to lead by example.”

Economist Vince Musewe said all taxes should be paid in local currency to promote the Zimbabwe dollar.

“I think it’s a good start. All taxes should be paid in local currency so that it has more impact. And it must also cover state enterprises, not only the government. If people don’t have confidence in your local currency they will trade it into buying USD. Government should abolish the parallel market which is causing serious inflation,” he said. NewsDay