Zimbabwe is well on course to complete de-dollarisation, with the process expected to take five years, central bank governor John Mangudya said on Monday.
The country officially ended a decade of dollarisation last June, but a number of exemptions, including payment of duty for goods deemed to be luxury imports as well as for services such as emergency passports, coupled with roaring foreign currency-denominated sales in the informal sector have ignited debate that the economy is re-dollarising.
Not so, insists Mangudya.
“The bank is encouraged by the positive de-dollarisation process that has been taking place in the country. The bank believes that the macroeconomic signals that include fiscal and monetary discipline, prospects of positive economic growth and lower inflation are improving to support a gradual de-dollarisation process within a timeframe of five years,” Mangudya said in a Monday policy statement following the Monetary Policy Committee’s meeting last Friday.
He said foreign currency deposits, as a proportion of money supply, had gone down to 37% by December 31, 2019, from 50% previously, while foreign currency denominated loans in the banking sector stood at 22% at the close of the year.
The use of local currency for transactions reached ZWL$459.6 billion in 2019, from 189 million transactions, he said, adding that the use of foreign currency for selected services did not amount to re-dollarisation.
“Allowing the use of free funds within the national economy for the payment of customs duties on selected products, paying for emergency passports, procurement of basic commodities such as food items and fuel, under the direct fuel import scheme, should not be misconstrued as going back to dollarisation, but rather as common good for the country to promote the inflow of free funds from the diaspora and necessary to buttress the confidence that is needed under the de-dollarisation process.”
Mangudya also sought to reassure holders of free funds – diaspora remittances, transfers by NGOs, embassies and international organisations as well as receipts from off-shore activities – that the central bank would not interfere with their foreign currency deposits.
“The bank would…like to reassure all holders of free funds that their funds are safe and secure in Zimbabwe. The same is true for all other foreign currency accounts and that the current export retentions are being maintained at their current levels. The bank has, therefore, no appetite to tamper with the legal status of the public’s foreign currency accounts,” he said, adding that free funds made up 30% of the country’s total export receipts.