Zimbabwe Govt Directs Exporters To Surrender 25% Of Proceeds Directly To Treasury
Zimbabwe’s Ministry of Finance and Economic Development has directed that exporters pay their 25% export proceeds surrender requirement to the government and not the central bank. Finance Minister Mthuli Ncube announced that the Treasury will assume foreign debt by funding the 25% surrender portion of export proceeds. This move was aimed at slowing the growth of money supply, which is causing the Zimbabwe dollar to lose value.
However, concerns have arisen regarding how the government will fund the 25% surrender portion of export proceeds, given that the local currency continues to lose value against the US dollar.
Economic commentators have suggested that increased taxes may not be adequate to pay the portion. Economic blogger Tinashe Murapata said on Twitter:
Treasury has taken unprecedented steps to force exporters to pay directly surrender proceeds into its accounts in its statement, as one would, when they pay taxes, effectively fiscalising monetary matters. Treasury then claimed that it would settle the 25% surrender receipts with its own ZWL collections.
Having witnessed contractors and wheat farmers delayed payments, the market wondered where treasury would get the money. Even today, the market is wondering where treasury will get the money to pay the “foreign debts” it has assumed. Despite the propaganda of retaining the Zimbabwe dollar, the tussle reveals what is most valuable is the American dollar.
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Additionally, government contractors, civil servants, and farmers are demanding to be paid in US dollars. Zimbabwe’s government has often funded local debt in the past with the issuance of debt instruments.
Local financial services firms have suggested that the government create demand for the local currency to increase private sector participation on the supply side of hard currency, The Standard reported. Local financial services firm, IH Securities in its analysis of treasury’s measures to prevent a complete slide into dollarisation, said:
By allowing all customs duty to be payable in Zimbabwe dollars, we expect demand for the local currency to increase. Theoretically, this should trigger private sector participation on the supply side of hard currency as companies sell to meet obligations.
On the other hand, we might experience increased power supply disruptions as foreign currency inflows to Zesa are reduced. The treasury also limited weekly auction allotment to US$5 million so as to avoid build-up of a backlog.
Despite the economic growth expected to increase by 3.8% this year, Zimbabwe still faces challenges such as power shortages, inflation, and depreciating local currency.
