Deja vu: Govt threatens crackdown on businesses amid forex turmoil

Zimbabwe IMF
Inflation poser: Ncube under pressure on wages as prices rise

The government will order impromptu audits and suspend licences for businesses pricing using black market forex rates, Finance Minister Mthuli Ncube announced on Thursday amid another episode of forex market turmoil.

In recent weeks, the government has ordered the arrest of scores of people accused of illegally trading in foreign currency. After months of relative stability, the Zimbabwe dollar has weakened considerably since April 2021, when it traded around 130 to the United States dollar, to levels around 170 currently. On the official market, the local currency is trading around 88 to the greenback.

This has triggered a fresh round of inflation fears, with monthly inflation rising from 1,58% in April to 4,73% in September. The central bank has had to revise its year-end inflation target, first from below 10%, then to the 25%-35% range and finally to between 35%-53%.

ALSO READ: RBZ RAISES INFLATION TARGET AGAIN, BUT DENIALISM LIMITS EFFECTIVE RESPONSE

The official forex market has been struggling to meet demand, forcing businesses to source forex from the black market, joining households and informal businesses relying on the unofficial market for US dollars.

Amid a clamour for a more efficient forex market, Ncube and his central bank counterpart John Mangudya continue to insist that the auction system was working and that the black market constitutes a small segment of the economy.

On Thursday, Ncube accused businesses accessing forex on the auction of pricing using black market rates and warned of an imminent crackdown that harkens back to the old, dark days.

“The Zimbabwe Revenue Authority will be carrying out impromptu audits of corporate activities with a view of quantifying potential tax liabilities arising out of illegal foreign currency trading,” Ncube said in a statement.

“Businesses who disregard the law and continue to price their goods on the parallel market rates will have their licences suspended.”

The Financial Intelligence Unit will also monitor and analyse financial transactions to expose illegal financial deals, Ncube added.

ALSO READ: FOREX AUCTIONS – DEFENSIVE MANGUDYA HAS LEARNT NOTHING FROM RECENT HISTORY

Analysts who warned that the government’s grain purchase programme as well as increased infrastructure spending would exert pressure on the currency, resulting in inflationary pressure, appear to have been vindicated.

Although money supply growth has slowed down, it still increased by 150% between July 2020 and July 2021, according to the RBZ.

Past standoffs between the government and business have yielded no winner as shortages emerged and economic instability ensued. 

In May, government issued SI 127, which sought to punish companies for pricing in foreign currency or offering discounts in US dollars. The move was condemned by industry, with the CZI saying the measure was eroding confidence further, describing it as “heavy handed”.