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Business and Economists Bemoans Exchange Rate Manipulation and Price Controls – The

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HARARE, – Business leaders and economists have expressed strong criticism of the Zimbabwean government’s recent measures to manipulate exchange rates and reintroduce price controls, aimed at curbing inflation.

The annual inflation rate rose to 57.5% in April, up from 55.3% in March.

In an effort to regulate goods pricing, the government enacted Statutory Instrument 81A of 2024, which eliminates the 10% premium on forex sales. Consequently, all sellers are now mandated to use the interbank selling rate or face fines of at least ZiG200,000.

Denford Mutashu, president of the Confederation of Zimbabwe Retailers (CZR), has written to the Minister of Industry and Commerce, Mangaliso Ndlovu, outlining concerns over Statutory Instrument 81A. The letter, obtained by Business Times, states:

“We are writing to express our strong concerns regarding Statutory Instrument 81A of 2024. While we understand the intention behind this instrument, we believe that the current framework is unworkable and requires significant adjustments to ensure its feasibility.”

Mutashu emphasized that the mandated exchange rate does not reflect a cost-recovery rate under current circumstances, noting that banks are charging clients about 5% above the selling rate. Currently, banks are selling at approximately ZiG14.70:US$1.

The introduction of a new intermediate money transfer tax (IMTT) statutory instrument has doubled the IMTT for forex purchases on the Willing Buyer, Willing Seller (WBWS) market from 1% to 2%. Combined with the 1% fee charged by the Reserve Bank of Zimbabwe (RBZ), the total cost for WBWS purchases reaches 3%, resulting in an overall cost about 8% above the RBZ selling rate.

Mutashu also highlighted the issue of forex availability, noting that delays in acquiring forex can lead to losses due to the devaluation of the ZiG. He recommended that bank selling rates should not exceed the RBZ selling rate and that WBWS forex purchases should be exempt from IMTT. Additionally, he suggested removing the RBZ’s 1% admin fee and allowing an extra 2% above the WBWS selling rate to account for ZiG volatility.

“If these measures are not implemented, SI 81A of 2024 will not be workable and will lead to a cat-and-mouse game between the regulator and businesses,” Mutashu warned.

Kurai Matsheza, president of the Confederation of Zimbabwe Industries (CZI), echoed these concerns, stating: “In economics, there’s a law of demand and supply. The government should follow that for the exchange rate to stabilize. Anything outside that will affect the economy.”

Economist Vince Musewe criticized the government for repeating past mistakes by reintroducing price controls, which he argued could lead to shortages and smuggling.

“You cannot police market sentiment. The market is a beast that can only be tamed by building trust and confidence. Price controls always create alternative market shortages and increased smuggling. We are not learning from history,” he said.

Tony Hawkins, another economist, pointed out that the threats of arrests and fines indicate that the government’s approach has not changed.

“Next comes the shifting of goalposts with new SIs and additional ways of calculating inflation. How can it be a free market if anyone who trades on a willing buyer-willing seller basis is breaking the law unless he trades at the manipulated RBZ rate?” Hawkins questioned.

The business community and economists are calling for a reassessment of the government’s policies to ensure a more feasible and effective framework that supports economic stability and growth.

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Business and Economists Bemoans Exchange Rate Manipulation and Price Controls – The

2024-05-17 17:24:38

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