Source: ‘ZiG‑only pay will appreciate domestic currency’ – herald
Zvamaida Murwira
Senior Reporter
THE Government’s directive requiring suppliers to be paid exclusively in ZiG will result in the appreciation and firming of the domestic currency given that there will be more demand for it, Finance, Economic Development and Investment Promotion Minister Professor Mthuli Ncube has said.
Speaking during a post-Cabinet media briefing in Harare on Tuesday, Prof Ncube said exclusive payment of suppliers using ZiG under the National Standard Pricae List will not result in excess liquidity but will actually see the appreciation of the local unit, owing to a surge in demand.
He was responding to concerns about whether the policy directive would trigger exchange rate volatility as people rush to preserve value by buying foreign currency on the parallel market.
“What should happen is, if we are insisting that we pay out in ZiG, the economics dictate that the domestic currency should appreciate. What the public is worrying about, what other players are worrying about, is that they feel there is liquidity sloshing around, and therefore this will cause the currency to depreciate. But it can go the other way. It can also appreciate provided there’s a liquidity constraint,” said Prof Ncube.
“Once you have a liquidity constraint, a money supply constraint in ZiG, any demand for ZiG should see the price of ZiG appreciating, or rather the exchange rate appreciating.”
The minister said there is no excess liquidity in the market that could undermine the currency.
“I can assure you that there’s no excess liquidity sloshing around. We have effective instruments to mop up any excess liquidity, including NCDs (Negotiable Certificate of Deposits), higher interest rates and other almost open market operational instruments to deploy, to mop up any liquidity,” he said.
Negotiable Certificate of Deposits are designed to absorb surplus funds from the banking system, providing a secure, interest-bearing investment alternative for financial institutions while helping central banks manage liquidity and regulate money supply.
Prof Ncube said Government had to intervene by introducing a new pricing framework for exclusive payment in domestic currency for local suppliers after it noted that they were overpricing goods and services being procured in the public sector.
He said authorities analysed production costs of locally produced goods and came up with a price structure that must be complied with under the National Standard Price List, which will set reference prices for commonly procured goods and services.
“Finally, we have come up with a social standard price list. Why did we do that? The reason really is that we have noticed that there has been overpricing by suppliers to the Government for what Government consumes in terms of goods and services,” said Prof Ncube.
“So we decided to go out there and then analyse, research and then come up with this price list, which really says that if they are procuring pen or wallpaper or whatever locally, then that price should be within a specific range.”
The minister said the price list must be complied with, with anything above the specified range considered overpricing and rejected by the system.
The framework has been uploaded onto the e-procurement system that manages Government procurement, and is available on the ministry’s website.
Prof Ncube expressed satisfaction that the Reserve Bank of Zimbabwe has issued an accompanying statement, saying anyone wishing to source foreign currency for legitimate imports can approach their bank or the central bank.
“We have enough United States dollars to cover any demand for imports in ZiG. We have got $1.5 billion in reserves, in hard currency, including gold. We are able to cover the $400 billion in ZiG that is in circulation. So we have enough cover. There’s no reason to worry about any access to foreign currency,” he said.
Prof Ncube said the objective is to ensure order in Government procurement processes within reasonable price ranges to avoid overpayment.
“If we don’t overpay, then we will make sure there’s no over-contracting, then we won’t fall behind in terms of paying our contractors. And then we prefer, obviously, to pay in ZiG as a priority for locally sourced goods. If you are sourcing goods abroad, outside, because they can’t be found locally, we will pay in United States dollars for that,” he said.
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