ZIMNAT says it’s too early to drop 1:1 currency rate


-1

Ncube also ordered that companies selling goods in US dollars must also pay taxes in the same currency. Zimnat says this may boost forex earnings.

“Whilst the new multicurrency taxes are controversial, considering government’s stance in terms on the parity between RTGS dollars and US dollars, from our assessment, government is trying to recover what it has foregone in exporter foreign currency retentions via foreign currency taxes. In addition, government’s ability to generate foreign currency receipts through multicurrency taxes, may accelerate the deregulation of the foreign currency market which we believe is more beneficial for the economy in the long run.”

Zimnat however cautions that 2019 will see a slowdown in the economy, as Ncube’s austerity measures bite.

“We believe that the increases in taxation across the entire economy, coupled with a significant decline in government spending [contractionary fiscal policy], may translate into a slow-down in economic activity in 2019. In addition, if the 2019 Monetary Policy is also contractionary in nature i.e. focuses on tightening liquidity, which is what we expect, this may further accelerate the economic slowdown initiated by the fiscal policy.”

With consumers having less money to spend to buy goods, businesses will also suffer.

Zimnat says: “A slower economy means weaker consumer demand (lower disposable incomes), which may affect industry output and volumes growth. Coupled with foreign currency shortages which are expected to persist in 2019, industrial output is expected to remain subdued, as imported raw material supplies remain difficult to secure or are expensive.”

Ncube has refused to free up the exchange rate, preferring instead to go after the budget deficit, which he sees as the key cause of the currency crisis. He has curbed the issuance of Treasury Bills – the primary source of government’s local debt – and limited use of the central bank overdraft. However, he has been criticised for not going far enough in cutting rampant government spending.

If Ncube’s reforms are implemented fully, Zimnat expects economic stability by the end of 2019. However, the risk of “political pushback” from politicians and the public remains high.

“We strongly believe that controlling the money supply growth and mopping up the excess RTGS liquidity, is critical for the stabilisation of the currency markets, inflation and the overall economy. The deregulation of the foreign currency market must continue, as this will strengthen the country’s exporter base, increase US dollar liquidity within the banking/private sector and stabilise prices,” the Zimnat report says.- NewZwire

(306 VIEWS)

Don't be shellfish... Please SHAREShare on Google+
Google+
Tweet about this on Twitter
Twitter
Share on Facebook
Facebook
Share on LinkedIn
Linkedin
Email this to someone
email
Print this page
Print

Like it? Share with your friends!

-1
The Insider

The Insider is a political and business bulletin about Zimbabwe, edited by Charles Rukuni. Founded in 1990, it was a printed 12-page subscription only newsletter until 2003 when Zimbabwe's hyper-inflation made it impossible to continue printing.

0 Comments

Your email address will not be published. Required fields are marked *