Treasury Urged to Strengthen Implementation of 2024 Budget Measures to Ensure Currency Stability – The Zimbabwe Mail

Harare, Zimbabwe – The Confederation of Zimbabwe Industries (CZI) has called for the effective implementation of measures outlined in the 2024 mid-term budget review to ensure lasting stability for the Zimbabwe Gold (ZiG) and control inflation.

The CZI, Zimbabwe’s leading business lobby, highlighted that while the ZiG, introduced in April 2024, has contributed to a period of stable inflation and exchange rates, the country still faces significant challenges.

Chief among these challenges is the limited access to foreign currency on the interbank market, which hinders the broader acceptance of ZiG.

Despite the ZiG’s introduction bringing some price relief, with month-on-month inflation dropping to -0.1% in July 2024 from 0.0% in June 2024, inflation concerns remain. The local economy continues to rely heavily on the US dollar, complicating efforts to stabilize the new currency.

Finance Minister Professor Mthuli Ncube’s mid-term budget review, delivered on July 25, 2024, included several measures aimed at bolstering ZiG demand. Key among these is a new tax policy requiring companies with more than 50% of their revenue in foreign currency to pay corporate tax in both USD and ZiG. This move is expected to compel companies to convert some of their USD into ZiG to meet tax obligations.

Additionally, the budget introduced the requirement for all presumptive taxes to be paid in local currency and stipulated that customs duties on select finished goods used in production would also be payable in ZiG. These measures are designed to increase demand for the new currency by aligning tax obligations with ZiG payments.

CZI noted that if these measures are successfully implemented, they could lead to greater market participation and a more market-determined exchange rate. However, they also expressed concern about the growing parallel market premium, which exacerbates inflationary pressures both in ZiG and USD.

The Reserve Bank of Zimbabwe (RBZ) recently injected US$50 million into the interbank foreign exchange market to address the build-up of foreign currency demand at banks. Despite these efforts, CZI warned that the excess demand for USD indicates that ZiG could face further depreciation if not properly managed.

Economist Professor Gift Mugano praised the government’s efforts to promote ZiG but argued that more comprehensive measures are needed. He suggested that all taxes should be collected in ZiG to bolster its acceptance and that improving liquidity is crucial, though it must be managed carefully to avoid exacerbating inflation or exchange rate volatility.

Mugano also highlighted the need for structural policies to enhance productivity and reduce reliance on imports. He emphasized that boosting local production and formalizing the informal sector could further support the ZiG and overall economic stability.

Overall, while Zimbabwe’s measures to stabilize and promote the ZiG are a step in the right direction, experts agree that robust implementation and additional structural reforms are essential for achieving long-term economic stability and reducing inflationary pressures.

Source: Business Weekly