On Friday 19 August at around 0900 hours, the official Zimbabwean dollar to USD exchange rate moved up from $498.5334 ZWL per 1 USD to $500.6271 ZWL per 1 USD. The official rate has been steadily climbing for months now but the climb has accelerated ever since the Willing Buyer Willing Seller rate was adopted as the official rate. The rate is now firmly above the $500 ZWL mark as it currently stands at $507.0926 ZWL per 1 USD as of this morning. On the other hand, the unofficial rates have remained somewhat stagnant since the begging of this month when the government stymied them with a letter to ministries.
Despite jingoistic noises being made about the power of gold coins, you should know that it is not true. As we have already pointed out in our analysis of the issue the real reason why unofficial rates have remained the same is that the government has stopped printing RTGS for now. The permanent secretary of Finance issued a directive to various ministries ordering them to stop making wanton payments to suppliers at black market rates essentially stopping unbridled spending in its tracks. Unofficial rates are unlikely to change until September when the government will probably resume printing after their internal audit of ministries is done.
Ministries Internal Audit departments shall carry out a due diligence review exercise on all running and future contracts with special focus on pricing to all payment runs submitted to Treasury as a July 31 and were suspended for funding.
The due diligence reports for all submitted and suspended payment runs shall be submitted to the secretary of Finance and Economic Development by 2 September, 2022.
Secretary Guvamatanga speaking on the freeze on payments and the ongoing audit
It’s not clear what will happen after the audit is done but the audit will probably reveal the same problems the Auditor General has already outlined in multiple reports each year. The biggest issue will be related party transactions and opaque dealings such as the ones at Cottco where executives make briefcase companies or rope in their friends and family’s companies and fraudulently award them contracts which are inflated. The executives then proceed to split profits with the benefiting company in return for them awarding the company a contract. That is why people at these ministries are happy to pay prices at inflated rates.
Will this stop? Will the government keep the lid on spending forever? That is unlikely to happen. Sooner or later the tap has to be turned on. All the government has to do is to make sure they turn on the tap responsibly. In the meantime, the gap between the official and unofficial rates will hopefully grow smaller and smaller before the two converge. That will eliminate the bulk of the problems our economy is facing. Arbitrage opportunities from the rate have allowed the bigwigs to prosper at the expense of the wider economy. Will the government be able to change this? Only time will tell.
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