THE recent announcement by the Reserve Bank of Zimbabwe (RBZ) requiring exporters to surrender 30% of their foreign currency earnings indicates a significant change in the country's monetary policy.
While the aim of this policy may be to stabilise the interbank foreign exchange market and strengthen foreign currency reserves, it raises serious concerns about its potential impact on the economy, especially for exporters who are already facing foreign currency shortages.
Critique of the policy
The policy reveals a worrying trend of increasing government control over the economy, particularly in managing foreign exchange.
By forcing exporters to give up a larger share of their foreign currency earnings, RBZ risks discouraging exports.
Exporters, who are vital to the economy, may find it harder to operate under such restrictive measures.
This could result in a decline in overall export volumes, worsening foreign currency shortages instead of resolving them.
Additionally, the timing of this policy is especially troubling.
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Many companies in Zimbabwe are already grappling with severe cash flow problems due to lack of foreign currency.
Imposing an extra burden on exporters now can push some businesses towards insolvency.
A significant drop in export revenue can lead to job losses and hinder economic growth.
The need for alternative measures
To tackle these issues, RBZ should explore several alternative strategies that can create a more favourable environment for exporters while still aiming to stabilise the economy.
Introducing incentives for exporters: Instead of enforcing a mandatory currency surrender, RBZ could offer incentives to exporters who keep a higher percentage of their foreign currency earnings.
For instance, tax breaks or subsidies can encourage companies to retain more of their earnings in foreign currency, thus injecting liquidity into the economy without direct pressure.
Strengthening the interbank foreign exchange market: The central bank should focus on improving the efficiency and transparency of the interbank foreign exchange market.
By ensuring that the market operates effectively, RBZ can facilitate better exchange rates and greater access to foreign currency for businesses.
Promoting financial instruments: The introduction of financial tools like forward contracts can protect exporters against currency fluctuations.
This provides exporters with greater certainty regarding their foreign currency earnings and reduce the risks associated with exchange rate volatility.
Encouraging foreign investment: The central bank should prioritise attracting foreign direct investment into the country.
By creating a more investor-friendly environment, Zimbabwe can boost its foreign currency reserves without adding more pressure on exporters.
Enhancing engagement with stakeholders: It is essential for RBZ to engage with exporters and other stakeholders in the economy to fully understand their challenges.
A collaborative approach could lead to more balanced policies that support both the government's goals and the needs of the business community.
While RBZ’s intention to stabilise the foreign exchange market through increased currency surrender may stem from a desire for economic stability, the potential consequences of such a policy could harm the very exporters that the economy depends on.
A robust approach that promotes export growth, improves market efficiency and encourages collaboration with stakeholders could likely lead to better long-term outcomes.
- Raymond Tendai Rusinga is a researcher in Harare, Zimbabwe. Please feel free to WhatsApp or call: +263 776 206 227 or email: rayrusinga02@gmail.com. He writes here in his personal capacity.
