Zimbabwe Finance Ministers says suspension of banks loans was a big hammer but it was needed

THE MINISTER OF FINANCE AND ECONOMIC DEVELOPMENT (HON. PROF. M. NCUBE): Thank you Madam President. I thank Hon. Sen. Kambizi for the question regarding the exchange rate, money changers and the parallel market. The players in the parallel market are numerous. It is not just the ordinary citizens at the street corners. It is also the corporates. It is also banks. I think we know what money changers do – they change money. So their business is clear but illegal at the same time. Some of the corporates are going into the banking sector to borrow cheaply because of low interest rates and use those resources to acquire inventory, to store the inventory or to put it on shelves at higher exchange rate.  Every time they do that, then the whole cycle starts all over again. We have a situation where even corporates were pushing up the parallel rate. This is announced by some faceless people that there is a new parallel rate. I do not know where that is coming from.

Some of the banks were doing exactly that on their own account using their own resources, taking positions in the market. There are numerous players and all trying to get easy money, which then makes the exchange rate unstable and creates a power rate whose level is very different from our official auction rate or the willing buyer willing seller rate.  So, what actions have we taken and continue to take?  Let me be clear – we are using both the ZW dollar and US dollar.  It is not one or the other and there is a very good reason why we are doing that.   The good reason is that we have sanctions on us, challenges with credit lines and so without credit lines, you have to be creative.  So we introduced the auction, a surrogate credit line access mechanism where we are accessing the US dollars that are already here through the 20% surrender tunnel as well as the export retention scheme that is in place for exporters as well as whatever Government needs to pay through Treasury sells onto the auction to pay civil servants another Zim dollar liability.  So we need both currencies and I had to be clear about that from the onset.

I also hear arguments about US dollarisation or ZIM dollarisation.  Please, I urge the public to desist from that argument.  It is not a useful argument because we need both currencies.  If you go the root of ZIM dollars alone, for now it is too early to do that.  It would mean that we will not allow you to hold US dollars like in any other countries where you cannot use US dollars to shop.  We will also not allow the banks to keep foreign currency.  We cannot let them have one and half billion US dollars in the bank.  We cannot allow that because a mono currency regime does not permit that.  Furthermore, companies would have to restate their balance sheets in a manner that happened in 2008/2009 which is very dangerous.  So, please understand that we need both currencies and the current system but we need stability.

So what are we doing to deal with stability?  It starts with the key fundamentals of a stable currency that we do not want huge budget deficits.  As I speak, in the last four years, we have not been running large budget deficits.  In some years like in 2020, we even ran a surplus.  In 2021 however, we had a very small deficit, one and half percent deficit which is within the three percent target that SADC has mandated all countries to run their countries properly.  That is where we start – fiscal discipline.

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