“While economists of various persuasions can disagree to an extent with the legalistic position of the central bank (on parity), the policy is in fact quite sound, as allowing RTGS to evaporate would be reckless and (could), in fact, prove disastrous to the economy,” Mphambela wrote in the BusinessWeekly.
The false parity has thrown up all sorts of ridiculous price distortions.
It costs more to buy a litre of bottled water than a litre of fuel in some Zimbabwean shops. Fuel is actually cheaper in Zimbabwe than in Angola, Africa’s number two oil producer.
This is because, at current ‘local currency’ prices, Zimbabwe’s petrol and diesel costs less than US50 cents per litre, when the exchange rate is factored in. In August 2017, Zimbabwe’s fuel import bill amounted to $107 million. It rose to $130 million in August his year, a 21% jump. Retail prices have gone up by up to 6% over the period.
For a while, a few years ago, Zimbabwe’s fuel prices were among the highest in the region. Not anymore.
Government, which says it’s now allocating $140 million per month for petroleum imports, is struggling to chase motorists’ demand for the hugely subsidised fuel, resulting in frequent stock-outs and long queues which have re-appeared across the country.
Zimbabwe has been here before. For many years, government subsidised fuel imports through the National Oil Company of Zimbabwe (NocZim). The subsidy, compounded by graft and mismanagement, left the oil parastatal in debt, estimated at US$160 million by 2010. While the fuel subsidy gave the illusion of ‘affordable fuel’ for motorists, the reality is that the country is still paying for that folly through the NocZim debt redemption levy, which was introduced in 2003.
To this day, consumers pay 8.2 cents and 2.8 cents for every litre of petrol and diesel, respectively, towards paying off the NocZim debt.
Moral of the story – there is no free full tank.
Nearly two decades after debt forced government to reluctantly break the NocZim monopoly, Zimbabweans are still paying for the subsidised fuel the parastatal inefficiently pumped into the economy.
The current largesse is being funded by exporters, such as large-scale gold producers who only get 30% of their sales proceeds in foreign currency. The rest is surrendered to the central bank, which pays them in RTGS, at the fictional 1:1 exchange rate. This arrangement is breaking the gold industry, because producers are, effectively, selling at a little over half the international bullion price. RioZim is taking the central bank to court over this.
The price hike tsunami that engulfed the economy after the currency pronouncement shocked many. Ever since, some dumbstruck consumers have taken to social media to share images of some goods whose prices have rocketed in the last few days.
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