• Zim dollar extend losses to 912 from 907 last week against greenback
  • Y-T-D losses widened by 85.3%
  • Exporters surrender 25% of their forex proceeds to RBZ in exchange of Zim dollars

Harare- The embattled local currency has extended its year-to-date losses by 85.3% making it one of the worst-performing currencies in the region. The Zimbabwe dollar plunged to 912.5828 against the greenback on the latest auction market held on the 14th of March 2023 from 907.9236 in the prior week, while the parallel market rate has shoot to a region of ZWL1250 to ZWL1300 against a single greenback. 

Data shows that the parallel market premium hovered by 100% in 2022 and over 19% in 2023 indicating high inflationary pressures and rapid depreciation of the local currency. 

With higher premiums, the auction market will always feel the pressure to ease at higher rates, resulting in higher volatility.

Wider premiums are a disincentive for exporters as they widen losses on surrender portions which currently stand at 25%. 

This disincentive leads to production cuts and losses to exporters due to a lack of sufficient foreign currency to import key raw materials and to employ alternative power sources amid erratic power supplies by the power utility, ZESA Holdings. 

The curse for exporters is further exacerbated by the usurious corporate tax of 25%. This is one of the most expensive corporate taxes in the region vis-à-vis the size of Zimbabwe’s economy. 

Zimbabwe presently operates on a source-based tax system. This means that income from a source within, or deemed to be within, Zimbabwe will be subject to tax in Zimbabwe unless a specific exemption is available. The maximum rate was 30.9 % and the minimum was 24%. 

In 2021, RioZim, a gold and diamond mining outfit forfeited circa 55% of its revenues mainly due to RBZ’s retention thresholds courtesy of the fast depreciating local currency, while Padenga Holdings reported a record loss after tax of US9$ 9 million primarily due to the retention thresholds that were at 40% at the time. 

Despite exporting gold and diamond, most of RioZim’s operations including the completion of its power projects stalled due to forex shortages. The company is currently looking for new potential investors for the Sengwa coal power project which is based on a coal resource of 1,3 billion tonnes, capable of generating up to 2 000MW of power, almost as much as Zimbabwe's total installed capacity.

The aim in a highly informal economy should never be to eliminate the parallel market, but rather to ensure that there is a good degree of supply channelled through the formal market at least sufficient enough to cover the critical sectors of the economy. 

However, the movement on the auction market is largely indicative that instead of stabilising the parallel market rate, the ZWL performance on the auction market shows it is pacing up to the parallel market rate.

There is a huge deficit in market equilibrium, a mismatch between the demand and supply of local currency and the US dollars due to an inflated import bill and a dire industry. The local currency is increasing its presence in the market due to inflation-adjusted pay-outs by the government to its suppliers, quasi-fiscal activities by RBZ and fiscal indiscipline.

This is increasing the US dollar demand which is used as a hedge against inflation. 

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