US$2 Billion Forex Allocation Fails To Stem Currency Volatility

MUTARE- The local Zimbabwe dollar continues to lose value in spite of the Reserve Bank of Zimbabwe allocating in excess of US$2 billion to industries and local businesses through the forex auction system.

Zimbabwe Coalition of Debt and Development (ZIMCODD) said these exchange rate woes only worsen the macro-economic conditions, in a state where industry capacity utilization is constrained by limited availability of forex in the economy.

In its analysis of the sustainability of the auction market, ZIMCODD blamed currency volatility for the current economic problems facing the country.

“Since the introduction of the auction market in June 2020, slightly above US$2 billion was allotted to corporates through both the main auction market and the SME auction market. The allocations were meant to support the productive sectors of the economy as well as the essential needs of the economy.

“Since the auction market is meant to support the productive sector amongst other key sectors and essentials of the economy, the GDP is a function of the auction market. Essentially, if we assume that the auction market is the sole supplier of forex to the productive sector, then US$2 billion is too little an amount to reignite the economy to productivity.

“Summarily, the government must avail more resources to the auction market if NDS1 growth targets are to be met as the limited funding constricts productivity and propels the parallel forex market,” said ZIMCODD.

In response to the foregoing challenges and a galloping inflation, the government through the Ministries of Finance and Economic Development and Industry and Commerce together with the Reserve Bank of Zimbabwe met with captains of industry to discuss the ongoing exchange rate volatility (instability), particularly in the parallel market rates.

ZIMCODD says ‘the ZW$ decline on the parallel (informal) market is a cause for concern because Zimbabwe has a highly informalized economy.

According to the communique issued by the Reserve Bank of Zimbabwe (RBZ), behavioral factors are behind the currency volatility.

“It was noted that the recent volatility in the parallel exchange rates was due to behavioral factors. In order to address these negative behavioral traits, it was agreed that a holistic and collaborative approach was required,” said RBZ.