Industry calls for S.I 127 suspension

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  • SI 127 set new regulations and penalties on the use of forex in the country
  • CZI believes that the new regulations are counterproductive to the gains made in achieving macroeconomic stability thus far
  • Analysts equate new measures to 2007/08 price controls

Harare –  The confederation of Zimbabwe Industries (CZI) is calling for the suspension of the recently enacted Statutory Instrument 127 of 2021 (S.I 127) which propounded new rules and regulations concerning the use of foreign currency in the country.

According to S.I 127, businesses are required to accept Zimbabwean dollars at the official exchange rate for goods and services priced in United States dollars, reluctance to do so may result in a fine of up to ZW$50,000, same for any business that puts a premium on goods and services in local currency to induce consumers to pay using foreign currency or to keep up with parallel market rates.

Furthermore, economic agents who use forex obtained directly or indirectly from the Reserve Bank of Zimbabwe (RBZ) auction market for purposes other than that specified in their application for forex will be guilty and liable to a fixed penalty of ZW$1 million.

CZI said these regulations are detrimental to the ministry of finance’s efforts to control inflation, eradicate the use of the black and informal markets, bring back stability to the foreign currency markets, and prevent the abuse of funds obtained from the RBZ foreign currency auction.

Instead, they say, the new regulations will only work to reduce foreign currency liquidity in formal channels as it will be more expensive to buy goods and services in the formal markets thus consumers will opt to go change their forex on the parallel market where the rate is bound to be higher than the official.

“Companies have been relying on local US dollar sales to generate the bulk of foreign currency used to sustain operations. Use of the Auction rate would result in consumers converting their US dollars to ZWL on the parallel market prior to purchasing, a practice already rampant outside the major retail chains such as Pick n Pay, OK and Bon Marche. This will deprive companies of what has become their main source of foreign currency,” CZI lamented.

They also presume that the new Statutory Instrument will lead to the inflation of the U.S dollar as a result of businesses trying to keep up with Zimbabwean dollar prices of goods and services.

“The immediate impact of applying the SI would be that US dollar prices will be hiked so as to result in the same ZWL price prevailing prior to the SI. This means an immediate spike in USD inflation, a component of our blended inflation rate,” they said.

Furthermore, they believe that demand for foreign currency on the auction will increase as it consequently becomes the only source of foreign currency leading to the Zimbabwean dollar further falling but by higher margins this time around. This will be on top of reducing foreign currency revenue for the government.

Equity Axis economic analyst Zvikomborero Sibanda has equated the new measures to price control.

He believes that “the government has officially re-introduced sector-wide price controls last seen in 2007/8. Price controls are detrimental as they lead to lower market supply, severe shortages and strengthen black markets as people try to overcome rising shortages by paying above the market price.”

CZI is suggesting that the government scraps the new regulations and instead engage businesses for an alternative solution that will not be detrimental to the gains that have been made in terms of macroeconomic stability over the last year.

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