FOREIGN currency allocations to both small-to-medium enterprises (SMEs) and large corporations have dropped by about 50% over the past two months in what experts say is a result of local currency shortages on the market.
An analysis of the Reserve Bank of Zimbabwe forex auction results in the past few months show that allocations for both SMEs and large corporates averaged US$23,6 million per week between May and July before slowing down to US$18,2 million a week in August, and sliding down further to US$13,2 million per week in September.
The slump in allocations come in the wake of local currency shortages following the RBZ’s introduction of gold coins in late July to mop up excess liquidity on the market.
Currently, the auction is trading at 621,5 against the dollar, compared to parallel market rates of between 700 and 800.
Industrialists say the reduction in activity on the auction is a result of the liquidity crunch due to government’s decision to halt and review payments to its contractors.
“Over the past week, I heard that activity on the willing-buyer, willing-seller market increased a bit as some businesses try to get Zimdollars in exchange for their Nostro balances. This made it even worse on the auction as players got currency on the willing-buyer, willing-seller market,” an industrialist who preferred anonymity said, adding that RBZ’s decision to increase interest rates to 200% was suffocating industry.
Economist Chenayimoyo Mutambasere said: “Even the local currency is now in short supply through the banks. This is also supported by the current lag times between allotted funds through the auction and the long delays in disbursement of the funds. Since its inception, the auction is generally more aligned to arbitrage opportunities than production as there has been little movement on employment or poverty figures.”
Economist Prosper Chitambara said companies had more foreign currency for their requirements, thereby reducing demand on the auction market.
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“The RBZ is allotting funds that it actually has as opposed to what it used to do, allotting funds it did not have at that particular point in time,” Chitambara said.
Economist Tatenda Andrew Mabhande said: “Allotting available foreign currency is the right step in addressing the imbalances that existed between demand and supply of foreign currency on the auction system. Now that the auction rate and willing-buyer and willing-seller rate is depreciating and closing on the black market premium gap, this may likely incentivise exporters and individuals holding onto foreign currency balances in the financial system to liquidate them through formal channels when in need of local currency.”
