TREASURY has ordered the country’s tax collector Zimbabwe Revenue Authority to issue garnishee orders to local companies that fail to meet their quarterly tax obligations this week as some make frantic efforts to raise their local currency balances as new government measures fuel a liquidity crunch, The NewsHawks has established.
Desperate to save the domestic unit from collapse reminiscent of the 2007 era, Zimbabwe’s fiscal and monetary authorities introduced several interventionist measures such as raising interest rates for domestic borrowings and suspending payments to government contractors and suppliers accused of extortionist and forward pricing until a due diligence exercise.
The authorities also introduced tradable gold coins to mop up excess liquidity and tame inflation.
Resultantly, the country’s inflation rate eased and the discrepancy between the official and parallel market foreign exchange rates narrowed, although skeptics say this may be short lived.
The year-on-year inflation rate for August 2022 increased to 285% from 256.9% in July 2022, gaining 28.1 percentage points.
The month-on-month inflation rate in August 2022 was 12.4%, shedding 13.2 percentage points on the July 2022 rate of 25.6%. Between March and June 2022, the month-on-month inflation trend was threatening to reach hyperinflation levels, peaking at 30.7% in June 2022.
Experts and industry leaders say a cocktail of measures characterised by both monetary and fiscal policies resulted in month-on-month inflation beginning to subside since July 2022.
Finance secretary George Guvamatanga said he has turned down a proposal from local firms seeking to meet the current Zimra quarterly payment date (QPD) in United States dollars as the domestic currency remains elusive due to the policy measures.
“The reality of it is that in a week’s time, the minister will also be demanding his taxes for the QPD and we have been approached by some companies who are now asking to pay for some of those taxes in United States dollars — to say we don’t have Zimbabwe dollars, can we pay your corporate taxes for the QPD and I have told then that I don’t want their US dollars,” Guvamatanga said.
“I have re-directed them to the (Reserve Bank of Zimbabwe) governor. I think there are three that I have said go and talk to the governor — the governor can take your forex and he will give you Zim dollars. We are actually refusing to take taxes in US dollars from certain players in the market who have come on to say we don’t have Zimdollars, we can’t go and borrow from our bank at 230%.
What was happening, the reality of that when we said the economy was overheating, most companies were taking a bet on the exchange rate, thereby overstocking in their inventories, in their goods.”
Guvamatanga projected that prices are this week expected to trend downwards as companies dispose of their inventory to boost their Zimbabwe dollar holdings.
“After that, some of them were keeping forex, then you have some who were a little bit brave, who even went on to the stock exchange and the other ones who were either brave or stupid who bought real estate. So you find out that there is a company which is saying we can’t pay our workers, they are sitting on nine months’ inventory, they are sitting on foreign currency, they have got shares, they have got buildings and we are saying either borrow at 230% or offload what you are holding,” he said.
“But the need to offload will certainly increase this week. So this week you will see more prices coming down, because they have to raise the monies for the taxes. I was talking to the Zimbabwe Revenue Authority (Zimra) Commissioner-General to say can you put a crack team to ensure that next week you collect our money without negotiation. So if you don’t have the Zimdollars then you risk being garnished by Zimra. So rather than sitting on the shares, rather than sitting on the stocks, rather than sitting on the foreign currency, a smart treasurer will tell the MD at this stage that let’s raise Zimdollars.”
Finance minister Mthuli Ncube this week threatened government contractors and suppliers with sterner actions for what he termed “extortionist pricing”, which he said was piling inflationary pressure on the economy.
“Macro-economic stability has been on a major downward risk to the budget and the economy. Inflation has taken a huge toll on the economy in the past eight months and government has taken relentless and significant steps to stabilise the exchange rate and control inflation,” Ncube said.
“Speculative behaviour will no longer be accepted nor tolerated . . . The full ambit of government policy tools is being used to restore macro-economic stability.”
While Treasury appears optimistic that the economy may be on course, the International Monetary Fund and the Confederation of Zimbabwe Industries (CZI) say more should done to make the economy tick.
“The IMF mission notes the authorities’ efforts to stabilise the local foreign exchange market and lower inflation. In this regard, the recent tightening of monetary policy and the contained budget deficits are policies in the right direction and have contributed to the narrowing of the parallel market exchange rate gap,” Dhaneshwar Ghura, an IMF official, said after concluding a staff visit on Zimbabwe this week.
“Further efforts are needed to durably anchor macro-economic stability and accelerate structural reforms. In line with recommendations from the 2022 Article IV consultation, the near-term macro-economic imperative is to curb inflationary pressures by further tightening monetary policy, as needed, and allowing greater exchange rate flexibility through a more transparent and market-driven price discovery process, tackling FX market distortions, and eliminating exchange restrictions.”
The CZI said the prevailing stability may be short-lived.
“Due to the measures that have limited liquidity in the economy, month-on-month inflation is expected to continue declining into single digit levels, the industrial lobby group said in its latest research note.
“However, unless the need for having a proper market determined exchange rate is embraced, there is a risk that the current stability is temporary, with threats of being disrupted once government starts paying contractors. There is need to ensure that the willing buyer willing seller platform which is the official foreign currency market discovers a true price of foreign currency to remove any opportunities for arbitrage which drive the parallel market.”