Christine Lethokuhle Mabhena
The latest move by the Reserve Bank of Zimbabwe (RBZ) Governor, Dr John Mangudya to liberalise the fuel procurement market and let the purchasing of fuel by the Oil Marketing Companies (OMCs) to be done through the interbank foreign exchange market on a willing seller and willing buyer basis is a major boost to the economy as it will go a long way in addressing rampant incidences of arbitrage associated with the 1:1 exchange rate previously offered by the central bank.
The liberalisation of the forex market is key to the creation of realistic pricing structures, to remove arbitrage and speculative trading.
The 1:1 exchange rate had become unsustainable for both the Government and RBZ as it was marred with gross abuse of the facility by unscrupulous business people and also put pressure on the Government to continue sourcing the scarce foreign currency to meet foreign payments of businesses and individuals.
Fuel imports have been consuming a sizeable chunk of the country’s retained foreign currency. The country needs 130 million litres of fuel per month which requires between US$100 million and US$120 million and oil companies have long enjoyed the 1:1 exchange rate for these fuel imports.
Over the past 18 months, Government through the central bank had assumed the role of sourcing foreign currency for the various key sectors of the economy, a role that has been a bone of contention with some industrialists and economists accusing it of overstepping its mandate in order to manipulate the official exchange rate to keep it low compared to parallel market rate.
Now that the Government has acceded to industry’s requests to ditch the subsidies and adopt an open market platform, this would provide immense benefits such as freeing Government from importing fuel for companies that have access to foreign currency.
This would provide breathing space for the central bank that was saddled with the task of playing the balancing act with the little forex available.
Another major benefit is that the floating interbank rate will soon converge with the parallel market rate and going forward, this convergence of the rate would give the economy direction as it would be determined by the official market rather than the current scenario where the black market set the pace as businesses have been pegging their prices on the parallel market rate of the day.
In the long run, the prices of goods and commodities would eventually stabilize after eliminating the black market and adopting an interbank foreign exchange market that is reflective of the market conditions.
Another benefit from this major policy shift is that Government is absolving itself from keeping a tight control on the official exchange rate and let the market forces determine the rates. This would allow a free market economy where the industry players trade amongst themselves without any hindrances.
Eventually when market confidence kicks in, exporters and individuals would liquidate the US$800 million sitting in nostro FCAs and also the US$700 million held in offshore accounts realised from exports as explained by Secretary for Finance and Economic Development, Mr George Guvamatanga recently, during a ZBC TV programme, Face The Nation.
During the programme, Mr Guvamatanga also put an interesting fact that, “it is not the responsibility of the Government or the RBZ to provide the market with foreign currency; it is industry, the miners and tobacco merchants. Those are the ones who have got access to foreign currency and are the ones that should bring foreign currency into the country.”
Moving forward, Government must maintain its oversight role in the forex market and guard against the downside of liberalisation such as wanton and unjustified adjustment of prices which may fuel inflationary pressures.
