Zimcodd calls for forex policy rethink
A CIVIL society organisation, the Zimbabwe Coalition on Debt and Development (Zimcodd), says the Reserve Bank of Zimbabwe needs to reconsider some resolutions it recently passed on foreign currency retention thresholds. The organisation also says the central bank is facing a herculean task in plugging the forex externalisation loopholes.
The Monetary Policy Committee recently made resolutions in respect of surrender and liquidation of foreign exchange receipts which include removing the compulsory requirement to liquidate all unutilised export proceeds after 60 days, increasing export surrender requirements from 30% to 40% on all export receipts, maintaining the liquidation requirement for domestic exchange sale at 20% net of sales tax and to ensure that the allotment of foreign currency on the weekly forex auction and interbank market continues to be guided by the priority list.
Commenting on the increase in exporters’ forex retention thresholds from 30% to 40%, Zimcodd said most companies are still facing challenges in accessing adequate foreign currency on the forex auction system, and this recent increase will continue to reduce the foreign currency balances of the exporters.
“This will weaken their ability to be able to procure necessary raw materials which require foreign currency. Therefore, the RBZ through the Auction System should be able to adequately meet the foreign currency requirements of the companies so as to enable their companies to access adequate foreign currency so as to smoothen their operations,” Zimcodd said.
While the scrapping of the compulsory requirement to liquidate all unutilised export proceeds was a welcome move, Zimcodd said the RBZ needed to close all the loopholes and strictly monitor possible externalisation of foreign currency receipts by unscrupulous companies.
“Now the exporters can hold their foreign currency indefinitely and be able to plan on when and how to use their foreign currency receipts. The previous policy directive was forcing the exporters to spend their foreign receipts on the items which may not be of current necessity, but they were doing so in a way not to lose their foreign currency receipts. However, the RBZ needs to close all the loopholes and strictly monitor possible externalisation of these foreign currency receipts by unscrupulous companies,” Zimcodd said.
On the other hand, given that most of the local producers especially individual farmers are not privileged to access foreign currency on the Foreign Currency Auction and they are accessing the US$ on parallel market to buy inputs, maintaining liquidation requirement for domestic exchange sale at 20% net of sales tax was not favourable to them.
Zimcodd said forcing them to accept 80% of their sales in local currency was unfair as it puts them at a disadvantage when procuring inputs, which are denominated in US dollars.
“It is therefore strongly encouraged for the RBZ to relook at this policy directive and find ways of promoting domestic producers, especially small-scale miners and small-scale farmers by a possible increase on the liquidation of domestic sales,” said Zimcodd.
The organisation said although the policy to ensure the allotment of foreign currency on the forex auction and interbank market continues to be guided by the priority list, it is open to abuse and manipulation by the awarded companies.
Zimcodd said some companies were engaged in nefarious activities, like inflating the supplier invoices, using parallel market rate to price their products and abusing the privilege of being on the priority list. The illegal activities are hurting the vulnerable and disadvantaged members of society.
“The RBZ needs to prioritise the provision of basic services like health and education, especially, in this crisis of Covid-19 pandemic. It is highly recommended for the priority list to balance between procurement of raw materials and provision of basic services like health and, water and education,” noted Zimcodd.