DOLLARISATION IN ZIMBABWE PDF

The recent public notice by the Zimbabwe Revenue Authority Zimra on the payment of domestic taxes in foreign currency is nothing short of a tacit admission by government that de-dollarisation has failed. The notice adds to the promulgated Statutory Instrument SI A of , which provides for the payment of customs and excise duty for selected goods in foreign currencies other than the local Zimbabwean dollar. The list of the selected goods is quite extensive and includes motor vehicles, leather products, cigarettes and a host of agricultural products, among others. Beyond the Zimra notice, the market was made to believe that SI of , which banned trading in foreign currency, was the law. Under Section 2 of SI of , it is stated that the British pound, Euro, US dollar, South African rand, Botswana pula and any other foreign currency whatsoever, shall no longer be legal tender alongside the Zimbabwean dollar in any transactions in this country. The section further says, accordingly, the Zimbabwean dollar shall, with effect from the 24th June, , be the sole legal tender in Zimbabwe in all transactions.

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The recent public notice by the Zimbabwe Revenue Authority Zimra on the payment of domestic taxes in foreign currency is nothing short of a tacit admission by government that de-dollarisation has failed. The notice adds to the promulgated Statutory Instrument SI A of , which provides for the payment of customs and excise duty for selected goods in foreign currencies other than the local Zimbabwean dollar.

The list of the selected goods is quite extensive and includes motor vehicles, leather products, cigarettes and a host of agricultural products, among others. Beyond the Zimra notice, the market was made to believe that SI of , which banned trading in foreign currency, was the law. Under Section 2 of SI of , it is stated that the British pound, Euro, US dollar, South African rand, Botswana pula and any other foreign currency whatsoever, shall no longer be legal tender alongside the Zimbabwean dollar in any transactions in this country.

The section further says, accordingly, the Zimbabwean dollar shall, with effect from the 24th June, , be the sole legal tender in Zimbabwe in all transactions. However, the Zimra notice means that producers can now freely trade either in local currency, foreign currencies or both provided they pay the government in the currency of trading. The notice further provides the account numbers for onward tax remittances, implying that taxpayers will simply need to deposit what is due to the taxman without any questions being asked.

Soon after the promulgation of SI of , government made exemptions to local petroleum marketing companies, chrome miners, non-governmental organisations NGOs , embassies and multinational corporations operating locally to use foreign currencies for local transactions through their foreign currency accounts FCAs. The hospitality industry including fast food restaurants , the National Railways of Zimbabwe NRZ and mining sector later followed on the central bank exemptions list.

It is not the first time that foreign currency trading exemptions have been used in the local market. The market has accepted that the pharmaceutical producers and retailers can openly trade in foreign currency, just as much as it is done in Victoria Falls, Kariba, Bulawayo and Beitbridge. With the influence wielded by the informal sector in the Zimbabwean economy, it was only a matter of time.

It can, however, be argued that the US dollar never left the local market despite spirited efforts by government to criminalise its use through various legislation. It is evident that the local market including government itself has no trust in the Zimbabwean dollar and the economy is justifiably re-dollarising in the face of hyperinflation and low confidence in government policies.

The prices that prevail in the local market are simply US dollar prices that are simply converted to the local unit using the parallel market rate in order to evade persecution by law enforcement agents, otherwise the market is partially dollarised. These Zimbabwean dollar prices charge constantly with the movements on the parallel market, piling more pressure on local producers to adopt a currency that brings stability and certainty.

The rushed introduction of the Zimbabwean dollar in June , before addressing key macro-economic fundamentals and instituting governance reforms, has been nothing short of a disaster for the Zimbabwean economy. Erosion of incomes for labour and commerce have been complemented by pension funds running into billions of US dollars and the Zimbabwe Stock Exchange ZSE market.

The reality of stagflation has finally dawned on the government. Increasing money supply to boost economic growth will lead to spiralling inflation, income erosion and decline in aggregate demand, while the partially implemented austerity reforms of meant decline in production in the absence of a stable currency.

Zimbabwe has walked the dollarisation path before and the wave is now so powerful that government will find it difficult to ignore while it struggles to meet its mandate of providing public services to the citizens.

Dollarisation allowed Zimbabwe to eliminate exchange rate risks, build real savings, boost lending rates, improve the investment climate, resume financial intermediation, reduce transaction costs in trade and retool production through accessing foreign lines of credit.

The local currency has failed the above in less than six months. The notice by Zimra may give the restive civil service a legitimate reason to ask for remuneration in foreign currency, considering the tax collector also feels that payment of domestic taxes in a battered local currency does not equate to being paid in a stable foreign currency. Partial re-dollarisation might be a soft admission strategy to allow the economy to gradually find its feet and avoid inevitable contraction in After all, dollarisation in was championed by the market with government succumbing when it was inevitable.

In , the market is leading government, as has been the case in countries that dollarised before Zimbabwe such as Cambodia, Venezuela, Argentina, Bolivia, Peru, El Salvador, Chile and Georgia. Dollarisation may also be an easier pill to swallow temporarily than implementing economic, social and political reforms that are critical in bringing sustainable economic development. These reforms include guarantees to property rights including finalising land tenure issues , rule of law, good governance and political stability, curbing corruption, cutting runaway government expenditure by simply spending below tax revenues and improving the business climate locally.

Despite the tacit admission, the market hopes that the government has got a plan to significantly increase local production, tackle sovereign debt issues, unlock investment through improving investor confidence and build foreign currency reserves in the event that re-dollarisation carries the day in Bhoroma is a marketer by profession, freelance economic analyst and holds an MBA from the University of Zimbabwe. For feedback, e-mail vbhoroma gmail. Victor Bhoroma The recent public notice by the Zimbabwe Revenue Authority Zimra on the payment of domestic taxes in foreign currency is nothing short of a tacit admission by government that de-dollarisation has failed.

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