PRESSURE is mounting on Finance minister Mthuli Ncube to dollarise the economy after members of the public told Parliamentarians that it was the only way to tackle price and exchange rate instability that were inflaming inflationary pressures on the economy.
A report by the Parliamentary Portfolio Committee on Budget and Finance issued yesterday in Victoria Falls at the 2022 pre-budget seminar showed that Zimbabweans wanted government to adopt the United States dollar as goods and services in the country were mainly being sold in that currency.
MPs raised concern over galloping inflation, which they said was rendering earnings for public workers worthless.
However, Ncube on Saturday rejected the proposal saying the country would not adopt the United States dollar as its sole currency due to risk of incurring large foreign currency deficits.
“We cannot adopt the United States dollar alone as the official currency, you were there before and there were long queues at the banks, huge foreign currency deficits and you had deflation. That was because of the US dollar. It is not a good idea and it will be suicidal to do so. What has happened is after we introduced the local currency, the industry is picking. It’s about stabilising the currency. We are reforming the country, running the country under a basically dual currency regime and of course other smaller currencies,” he said.
During public hearings on the 2022 budget, Zimbabweans suggested that Ncube announces a US dollar budget.
“Members of the public suggested that the government should denominate the 2022 National Budget in United States dollars,” the Budget and Finance committee report read.
“They expressed concern that the parallel market rate is going up at unprecedented rates, affecting the pricing of goods and services. They proposed that government should consider reverting to the multi-currency system, since most service providers prefer trading in forex. They expressed concern that the current tax system is complex and not user friendly for new entrants making it difficult to collect more revenue.”
MPs also said Zimbabweans expressed scepticism over the government-controlled foreign currency auction, which they asserted was failing to meet demand from the market and resultantly pushing up the parallel market rate.
Economist Gift Mugano, who also addressed MPs at the pre-budget seminar, warned that the auction system was “holding on a thin thread” and that its collapse was imminent.
“Although the auction system at its inception managed to foster economic stability, in recent months, it has faced several threats and risks mainly coming on the back of exchange rate disparities, that is approximately $93 to US$1 versus $180 to US$1 (on the parallel market).
“Massive price hikes in commodities like cotton, wheat and maize caused serious threat on money supply resurgence which has prompted RBZ [Reserve Bank of Zimbabwe] to institute measures aimed at cleaning out bad money,” Mugano said.
“The other drivers of black market rate spiral are the ongoing construction projects and the self-fulfilling prophecy – exchange depreciation causes further depreciation as market watchers throng the black market to preserve their currency.”
Speaker of the National Assembly, Jacob Mudenda said Ncube should ensure that the 2022 National Budget was “people-centred”.
Mudenda bemoaned the widening gap between the official auction foreign currency rate and the galloping parallel market rate, which he said was resulting in price instability.
“You may recall that one of the key outcomes from the presentations at the pre-budget briefing seminar was the worrisome disparity between the auction exchange rate premium and the odious parallel market rate, which is now hovering around $200 per one unit of the United States dollar as compared to the forex auction rate of $90 per unit of the United States dollar,” he said.
“If this conundrum is not addressed, it will derail the National Development Strategy 1 objective of stabilising the inflation rate and fail to contain it within the Sadc macroeconomic convergence of between 3% and 7%.”
MPs recommended that Ncube strengthens the local currency by prioritising funding of key sectors such as manufacturing and agriculture, as well as beneficiation of the mineral resources.