Earlier today Finance Minister Mthuli Ncube introduced three new measures made with the aim of saving the Zimbabwean dollar aka RTGS which has been on the ropes lately with the spiralling black market and even official rates. By far the headline clinching measure was the one that now allows Zimbabweans to pay up to 50% duty on imported car vehicles. That will be the measure everyone will be talking about but that is not the only measure. As our headline hints, it’s one of the three measures meant to shoar up the flailing local dollar.
The other measures are as follows:
- All mining royalties are now payable in Zimbabwe Dollars up to a limit of 50% of royalties due.
- All duties and taxes on the importation of designated motor vehicles are now payable in Zimbabwe dollars again up to a limit of 50% of duties and taxes payable.
- All domestic taxes due from exporters on their export receipts are now payable in both foreign and local currency in direct proportion to the approved export retention levels. As an example, an exporter who receives foreign currency of say USD1 000.00 at a 40% surrender ratio (60% retention) will pay taxes on the 40% in Zimbabwe dollars and the 60% in foreign currency.
Tryig to increase ZWL demand
What the minister is trying to do here is very transparent. One big reason why the ZWL is in trouble is that no one wants it. No one wants it because it is very little you can still do with it. You cannot buy fuel, food (if you expect to pay a reasonable price), rent or medicine with it. Businesses hate it and have resumed the use of discounts to encourage people to pay directly in USD. Where people pay in ZWL the proprietors rush to the black market to get USD as fast as they can to hedge against exchange losses.
The only thing you can do with it is buying electricity, pay rates and water bills and recharge your phone with airtime. Even when it comes to airtime network operators NetOne and Econet have a generous dollar per day bundle meant to reward those who buy airtime in foreign currency. Even some government departments offer discounts behind the scenes. It is common knowledge that a currency that no one wants loses value.
These measures are meant to mitigate that by creating demand for the local currency. Now people who want to import cars don’t have to ditch all their RTGS on the black market so as to be able to get the USD they need. They just have to ditch half their duty requirements and pay the government with RTGS. That’s likely to bring a bit of relief to the local dollar.
However as already pointed out in our early article. The reason why the ZWL is failing is not just down to a loss of demand in the local market. It’s also down to increasing money supply. The Zimbabwean government has been feverishly printing money. As long as that continues there is little hope these new measures will save the dollar.