Govt mops up ZWL$200bn excess liquidity

LIVINGSTONE MARUFU

 

Government has mopped more than ZWL$200bn excess liquidity  from the market as part of efforts to control price pressures  and keep the market stable, a senior government official has revealed.

The intervention occurs as consumer prices for goods and services are skyrocketing as a result of the depreciation of the Zimbabwe dollar.

Business Times can also report  that President Emmerson Mnangagwa’s administration  has also halted payments to contractors  who were allegedly fueling illegal market activity and causing the local currency to plunge against all major currencies.

Finance and Economic Development deputy minister Clemence Chiduwa (pictured) told Business Times that Zimbabweans should expect dry weeks ahead as the government has closed taps on excess ZWL$ liquidity.

“We have mopped up all excess liquidity in the market and there is reduced ZWL$ amounts resulting in a huge demand for the local currency.

“From Thursday (last week) we have mopped up in excess of ZWL$200bn, leaving the market with tight liquidity. It is not surprising that the market will have a serious demand of ZWL$ to pay bills and other costs that require local currency,” Chiduwa said.

He added: “It’s not surprising to see some struggling to get ZWL$ to buy airtime and bundles.”

Multiple government sources also told Business Times that the administration has also stopped making payments to contractors.

“At a high level meeting last Thursday, the government informed some of its biggest contractors that it has halted payments due to their participation on the parallel market and fuelling inflation.

“The suspension of payment to the contractors show that the government is now serious in arresting the situation that has spiraled out of control,” a source close to the developments who requested for anonymity said.

In a survey carried by Business Times in Harare yesterday, there was  a liquidity crunch even on the parallel market as the illegal foreign currency dealers were struggling to  supply the market with ZWL$.

The official exchange rate moved to ZWL$6926.57 per US$1  this  week from ZWL$6351.55 per US$1 while the parallel market remained stagnant at between  ZWL$8000 and ZWL$9000 per US$1.

An economist who commented on condition of anonymity said the government should maintain the current measure to ensure stability.

“The problem with our government is that the authorities know that they have put too much liquidity in the market and to stop the local currency freefall they should reduce huge ZWL$ payments.

“But they take time to implement that. I suspect that when they reduce liquidity, they will certainly loosen up to ensure one of them gets back on track.

“Government should be consistent on liquidity,” he said.

It is understood that the half-year statutory quarterly payments dates (QPDs), now around the corner, will further squeeze the market of the residual ZWL$ liquidity to strengthen the local unit.

At last week’s CEO Africa Roundtable breakfast meeting, former Finance Minister Tendai Biti told delegates that the country should have a market-determined exchange rate to achieve stability.

“If the authorities could free float the local currency and let the market determine the exchange rate, the exchange rate could find its resting place.

“Just like in Kenya where they freely floated their currency, the shilling found its resting place and it has been like that for years and there are no challenges there,” he said.

The development comes as the country’s largest business lobby, Confederation of Zimbabwe Industries (CZI) in its latest report said if the authorities could fully implement new measures, the market could stabilise.

“The government is still demonstrating that it can put in place measures to create the demand of ZWL$.

“In addition to these measures, it is recommended that the government must also add at least one more tax head to be payable exclusively in ZWL$ as stability obtains, which would go a long way in further sustaining stability.

“A market determined exchange rate is good for the economy and it will eliminate most of the arbitrage opportunities if it emerges,” CZI said.

 

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