RESEARCH firm Inter Horizon (IH) Securities has projected a boost in United States dollar liquidity as firms convert a portion of their earning into local currency to meet tax obligations.
To create more demand for the Zimbabwe Gold (ZiG), government proposed that corporate income tax will be settled on a 50:50 basis for companies whose forex revenue exceeded 50%, while this tax will be payable in proportion only in the currency of trade where local currency transactions dominate.
In another measure to boost demand for the local currency, user fees to government departments are to be payable in local currency unless specifically provided otherwise.
In its macro-economic update, IH Securities said the measures will improve greenback liquidity in the market.
“The proposed amendment to corporate income tax for net earners of US$ will likely require them [corporates] to liquidate some of their forex through official channels, thereby supporting dollar liquidity.
“Government will however, still have to fund its forex obligations. Post the introduction of ZiG, we have seen the market strengthen, also aided by the removal of minimum vesting periods.”
“Key focus will be on containing expenditure pressures and major expenditure heads such as the wage bill and debt servicing will be critical to avoid monetising the budget deficit,” it said.
“In our view, the introduction of ZiG has brought some stability into the market enabling some smoothness for business operations.
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The researchers noted that market capitalisation on the Zimbabwe Stock Exchange moved 114% to date since the introduction of ZiG. While some counters now appear full at current levels, there remain pockets of opportunity on the bourse.
Despite an increased need for social protection nets in the wake of the El-Niño-induced drought, Finance minister Mthuli Ncube did not introduce a supplementary budget with government working hand in hand with the private sector and development partners to ensure food security.
The budget deficit for the year is expected to register at 1,3% of gross domestic product (GDP), keeping within the confines of the stipulated 1,5% of GDP at ZiG5,6 billion.
Revenues are projected at ZiG93,2 billion versus expenditures of ZiG98,8 billion. As per the budget statement, by year-end, fiscal policy measures will be deepened to protect the domestic currency, as well as durably restore macro-economic stability.
