The Zimbabwean dollar is likely to strengthen as additional prongs of policies to reduce the amount of local currency in bank accounts, while the increase in the amount of foreign currency in official markets comes with the decision of the government that all businesses must pay their quarterly corporation tax in local currency, regardless of the source of their revenue streams.
VAT, which is a percentage of the sale price of each item, is still paid in the currency in which it is collected, with collectors having to split their financial accounts, but corporation tax has now reverted to a pure payment local currency.
This will suck more local currency from corporate bank accounts and, since borrowing local currency at 200% interest is now a financial disaster, companies with high levels of foreign currency activity will have to sell dollars Americans to raise their taxes.
Since these dollars are in foreign currency bank accounts or nostro bank accounts, this in turn means that these sales will be in official markets rather than the black market.
The net result should see even less local currency available for use on the black market and even more foreign currency available for sale in official markets.
This in turn should lead to a continued strengthening of the Zimbabwean dollar in both the interbank market and the black market, as the demand for foreign currencies decreases and the supply of local currency decreases,
Already, the black market has been hit by the shortage of liquidity such as local currency borrowing, and the resulting creation of local currency stocks in the private sector, as speculation has been halted by the 200% interest rate. .
Excess liquidity in bank loans taken out for speculative market activities, including the purchase of shares on the Zimbabwe Stock Exchange and in the foreign exchange market, has contributed to the volatility of the Zimbabwean dollar exchange rate.
At the same time, another $10 billion was withdrawn, with gold coins offering a better deal than black market speculation to preserve value.
A third prong was to force those who supply the government to calculate their prices correctly and hide at the interbank rate if they wanted to be paid.
While 70% of providers turned up, the remaining 30% have to redo all the calculations, and they are the ones who added to the local currency pool. Prior to the Second Republic, the government was the primary source of additional local currency liquidity; for four years, the private sector has been the source.
Now the tax collectors will add their own pressures to the other three pressures of interest rates, gold, and enforcing proper supply.
The Ministry of Finance and Economic Development said it was requiring companies to pay their quarterly tax obligations exclusively in national currency as part of wider measures to promote the use and desirability of the now largely stable Zimbabwean dollar for all transactions.
Until recently, inflation and exchange rate volatility weighed heavily on the economy and the government implemented and continues to implement a series of measures aimed at stabilizing the economy by anchoring the exchange rate , because its volatility was the source of inflation.
Speaking to a reporter at his offices in Harare yesterday about value for money and payments for ongoing government contracts, the Minister of Finance and Economic Development, Professor Mthuli Ncube said: “The government remains committed to maintaining macroeconomic stability and eliminating the harmful and destabilizing trade-offs that have permeated the economy to the detriment of citizens in general.
“The suspension of all payments on contracts that are clearly based on speculative forward exchange rates has resulted in a rapid market correction with official exchange rates on auctions falling and willing sellers windows lowering.
“We are now seeing rates of $605 for US$1 versus $660 for US$1.
“And we’ve also seen a correction even in the parallel market, with the unofficial exchange rate going down to levels below $700 to the US$1. So what we’re really getting is convergence in those two windows and this is welcome, it will close the arbitrage gap.”
Professor Ncube said that while government procurement contracts were undergoing a revalidation exercise, revenue authorities had continued to pay contract invoices that met value for money criteria.
Over the past six weeks, the government has paid out a total of $184 billion.
“As we move forward with the implementation of the value for money process, we are committed to honoring all of our obligations provided that they are properly priced in the public interest and that these payments do not impact negative on the exchange rate and do not cause galloping inflation.
“The government is committed to restoring price stability and macroeconomic stability and the elimination of speculative futures pricing is a necessary step to ensure that we deal with these adverse inflation expectations, which lead to a lack of confidence,” he said.
Following the implementation of the value for money process, the government expects all market prices to be based on economic fundamentals.
Speculative behavior will no longer be tolerated.
“We therefore encourage all players in the economy to compare prices fairly for all consumers, as this builds confidence in our beautiful economy. The full range of government policy tools are used to restore macro stability” , he said, adding that it was necessary. whether the goals of Vision 2030 are to be achieved,” Prof Ncube said.
Also responding to questions on the same occasion, the Secretary of Finance and Economic Development, Mr. George Guvamatanga, said overvaluation was happening in the market but had become more widespread from June this year. .
He said, however, that the government was working on a number of interventions to further strengthen the stability of the national currency, with some companies already asking to be allowed to meet their quarterly US dollar tax obligations amid tight dollar liquidity. Zimbabweans.
“I think the premiums that we started to see from June were quite heavily inflated, so it’s a fact that we’re not trying to run away from the fact that the excessive prices were still there. As for those who have already been paid, there are those who are much smarter and proactive who realized what they were doing was not very good and were proactive in offering credit notes,” he said .
For example, Mr. Guvamatanga said that some travel agencies reduced tickets originally priced at $699,000 to around $400,000 and issued credit notes.
“Those suppliers and sub-contractors (who have come forward) will still be considered differently once the audit exercise is complete, as they have voluntarily come forward. But for those who will actually be discovered during the audit process, we seek legal advice to see if we can recover if they have not volunteered to offer us credit scores…we will simply put in place the instruments necessary to recover the public monies,” he said. declared.
Some of the suppliers have been blacklisted by the government due to extortionate pricing practices.
Regarding government contracts requiring revalidation, Mr. Guvamatanga said that the Treasury had rejected a request from some companies seeking to pay their quarterly taxes in US dollars because they do not have local currency.
In the midst of the current US dollar scarcity, asking to pay some of these taxes in US dollars to say we don’t have the Zim dollars, can we pay your corporation tax for the QPD in US dollars? These would be less than 30% of normal Treasury payments.
“In a week the Minister (Prof Ncube) will be demanding his taxes for QPD (Quarterly Payments Date) and we were approached and I told them I didn’t want their US dollars. I redirected them to the Governor (Dr John Mangudya), I think there are three I told to go talk to the Governor, the Governor can take your forex and he will give you Zim dollars.
“We actually refuse to collect taxes in US dollars from certain market participants,” he said.
Guvamatanga said punitive action would be taken against any government officials found complicit in excessive pricing and procurement practices, while suppliers would be blacklisted and barred from future supply contracts.
He said the Treasury has noted with concern that substantial price differences have been obtained in the market for goods and services supplied to the government compared to other customers.
In this context, Professor Ncube said systems have been put in place to prevent overcharging for goods and services provided to government ministries, departments and agencies.
In addition, it was also noted that government departments, ministries and agencies across the various procurement management units, did not exercise due diligence, particularly with regard to value for money in price terms.
“Tenders were awarded without due regard to price controls on the basis that the prices passed a competitive bidding process.
“Some examples are a tender for laptops, which would cost nearly US$10,000 each, which is well above general market prices for high spec laptops, while in others spheres, a 2kg package of chicken was worth US$30 while market prices are a maximum of US$6 for the same,” he said.
He added, “We have seen a bag of cement cost the equivalent of US$18 per bag on some construction projects. Such is the extent of the overstatement that makes the government’s budget inadequate and our position as government is that this is not acceptable. .”
The combined effect of the above behaviors resulted in a rapid erosion of budgeted resources and hence the need for the government to come up with a series of measures to address the threat.
Professor Ncube said all existing contracts are now subject to a value-for-money audit before payments are made and there will be stiff penalties.
“Certainly, as Treasury, we will not pay any of these contracts which we believe are based on inflated prices. For those who have already been paid, what will happen to these contracts, we are still reviewing the best way to deal with But we try as much as we can to cope and say going forward it’s the new rules now,” he said answering questions from the room.