Government scraps duty on basic commodities

Story by Stanley James, Business Editor

Government has with immediate effect removed restrictions on the importation of basic goods as part of price stabilisation measures.

The Minister of Finance and Economic Development, Professor Mthuli Ncube this Thursday announced a new policy intervention that will see import duty on basic commodities being scrapped with immediate effect, and the move is also being made after Treasury revealed that despite strong macro-economic fundamentals, Zimbabwe is off late experiencing resurfacing price and exchange rate instabilities.

Other measures announced by the Treasury include a 100 per cent retention of domestic foreign currency earnings, the adoption of all external loans by the Treasury and the fine-tuning of the foreign exchange auction system.

“Foreign currency receipts across all categories of inflows have increased by at least 100% compared to a few years ago and are at their highest levels in years, with total foreign currency receipts expected to top USD$13 billion this year.

“However, despite all the underlying strong fundamentals, we have now seen a resurgence of macro-economic instability, with domestic inflation being driven primarily by the skewed preference for US Dollars as a savings currency. This has put enormous pressure on the exchange rate as the skewed preferences have continued to increase the velocity of the Zimbabwe dollar.

“This phenomenon has seen a growing USD cash economy and it is estimated that a large portion of domestic transactions are now being conducted in foreign currency. It is against this background and following wide consultations with the private sector and other stakeholders, that Government now announces the following policy measures:

2. Adoption of All External Loans by the Treasury
All external loans to the Government will now be transferred from the Reserve Bank of Zimbabwe to Treasury.

3. Enhanced Foreign Exchange Auction System
The Foreign Exchange Auction System will be further fine-tuned and will now auction a preannounced envelope, on a pure Dutch auction basis.

1. 100% Retention of Domestic Foreign Currency Earnings
In order to promote the banking of domestic sales of foreign currency in the banking system, the Reserve Bank of Zimbabwe will with effect from 15 May 2023, exempt all proceeds from domestic sales in foreign currency from the 15% surrender requirement.

4. Lifting of All Restrictions on the importation of Basic Goods
In order to enhance the supply of basic goods to the public, all basic goods will no longer be subject to import licences, and will also come into the country free of import duties and taxes.

5. Supportive Interest Rate Environment
Domestic Interest rates remain a variable of focus and are one of the main tools available for monetary authorities to discourage speculative borrowing and to reduce the velocity of the Zimbabwe dollar and thus promote stability. Measures to restore real savings rates in the economy are therefore necessary.

The Reserve Bank of Zimbabwe, through its Monetary Policy Committee, shall continue to review the domestic interest rate framework to allow domestic currency savings interest rates to be above the perceived rate of expected devaluation for holding ZWL balances, to be attractive to savers.

In the short-term, Government needs to immediately cause short-term interest rates of tenors up to 6 months to rise sharply, with longer-term rates remaining low, to reflect future inflation expectations. This will squeeze out speculative demand for both ZWL and USD.

6. Promotion of the Use of the Domestic Currency by Government Agencies

The government will endeavour to promote the growing and committed use of the local currency for domestic transactions by ensuring that levies and fees charged by its affiliated agencies and service providers, are to be paid for in local currency.

7. Gold Coins and Gold-Backed Digital Tokens

The Government of Zimbabwe is very pleased with the uptake of both the physical gold coins since they were introduced as well as the more recently issued Gold Backed Digital Tokens. Government, through the Reserve Bank of Zimbabwe, shall continue to assure public confidence in both instruments by ensuring that at all times, the Gold Coins and Gold Backed Digital Tokens remain fully backed by physical gold reserves.

The measures are also being introduced at a time when the economy registered a growth rate of four per cent last year, with foreign currency inflows being on record high and increased productivity within the manufacturing sector.

“After registering about 4% growth in GDP for 2022, we anticipate that Growth for 2023 will be significantly higher than the initial projection of 3.8%. Food security has been assured, underwritten by a deliberate policy mix from Government and supported by two successive good rainy seasons. On the back of the re-introduction of the Zimbabwe dollar, which brought about clarity to currency markets together with a number of advantages to the economy, together with a supportive policy framework, industrial capacity utilisation and productivity continue to grow, with about 70% of goods on the shelves now being locally produced,” said the Minister.

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