Zimbabwe government biggest loser when there is a discrepancy in the exchange rate

THE DEPUTY MINISTER OF FINANCE, ECONOMIC DEVELOPMENT AND INVESTMENT PROMOTION (HON. D.K. MNANGAGWA): Thank you Mr. Speaker Sir. Let me start by clarifying what Government policy is as opposed to what the existential reality the Hon. Member may be pointing out. He mentions that there is a Government policy that prohibits free market exchange rate. I would believe that the Governor, in his Monetary Policy Statement and subsequent reviews and circular that came out, I think two weeks ago, postulates that indeed we are following a free market exchange rate which is what led to some devaluation two weeks ago. 

The debate on whether the free-market exchange rate is really a free-market exchange rate, can be a subject for another discussion. But in terms of Government policy Mr. Speaker Sir, we are following a free-market exchange rate. 

Hon. Speaker Sir, now the problem that is emanating as alluded to by the Hon. Member, is that there is a growing discrepancy between the interbank or the official market exchange rate and the parallel exchange rate which then puts pressure on the retailers. I would say Government is probably the biggest loser when there is a discrepancy between the exchange rate. The market usually believes that it is only private business people who lose out but Government is the biggest loser. Whenever there is a gap in the exchange rate, it means that the tax collector is collecting revenues at an official exchange rate and paying for services at a parallel market rate while also paying its workers at the official lower rate while the civil servants have to go out into the market where there is a distortion.

Mr. Speaker Sir, this issue of distortion puts pressure, not just on retailers but in general on the economy. This is emanating from what I want to term, a flawed and fractured social contract that was meant to exist between business and Government during the subsistence of the structured currency. Mr. Speaker Sir, at the formulation of the social contract, the Governor made some postulations that if a retailer, if an importer was to present a bona fide invoice, this invoice would be honoured by the requisite foreign currency because indeed, there are reserves that are commensurate with the amount of ZiG in circulation. 

Where this social contract became flawed is when we had speculators who had bona fide ZiG invoices but actually had their own USD versus importers who had ZiG and no USD. This has put pressure on the USD market. It reaches a point Mr. Speaker, where the Governor of the Reserve Bank, the monetary authorities, have to philosophically or principally decide – does one liquidate the gold reserves to satisfy the urge of some of these speculators or do you consider reaching a point where you devalue and become more reflective of what is obtaining in the overall market? I would think that the Governor’s statement and actions two weeks ago, spoke to the latter chosen trajectory that we have taken. I will say this was not the alpha and omega of the solutions that are there. As I have mentioned Mr. Speaker, these distortions, this discrepancy not only affects the market or industry but it also affects Government at large, which is the biggest spender in the country. So, we are indeed motivated to make sure that this gap is closed and hence forth protect the integrity of our currency. So, these anomalies are being noted. 

As for empty shelves, I will tend to disagree with the Hon. Member. Industry has done some surveys and while there are some limitations from some retailers and wholesalers as to the quantum and the quantities of some of the goods that you can take, there has been no emptying of shelves. There has been an increase of goods moving into the informal economy, again due to the distortions in the exchange rates but these are issues that are being dealt with and you will find some measures coming into place to make sure that we deal with this ill. I thank you.

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