Employers wary of SI 27 of 2021
EMPLOYERS have raised fears that SI 27 of 2021 gazetted in a bid to achieve currency stability and tame the black market can trigger the country’s recession into the 2008 hyperinflationary era, arguing that the move is tantamount to price controls during that era.
SI27 of 2021 mainly seeks to instill discipline in the foreign exchange market through fining individuals and businesses that disregard 27 of 2021, which mainly seeks to instill discipline in the foreign exchange market, by imposing fines on individuals and businesses who fail to adhere to Government’s policy on foreign exchange, triggered mixed reactions from various stakeholders and the public.
Employers’ Confederation of Zimbabwe (ECZ) stated this in their latest July monthly newsletter; while also pinning the expected national economic recovery on high agriculture yields in the past season.
Zimbabwe economic crises have been spurred by the COVID-19 pandemic with both government and multilateral institutions such as the International Monetary Fund economic rebound in 2021; hinged on a successful 2020/2021agriculture season.
The organisation also noted the positive effect of the country’s implantation of a rule-based monetary policy.
“The recent Statutory Instrument 127 of 2021 (SI 27-2021) announced by the government in May 2021 entails civil penalties for all economic agents that override the Banking and Use Promotion Act (24:24) and the Foreign Exchange Act (22:05). The newly gazetted statutory instrument implies that businesses that do not accept Zimbabwe dollars (ZW$) at the official exchange rate for goods and services priced in United States dollars (USD) may face a maximum fine of ZW$50 000.
“Simply put, it is now illegal to price goods and services above the auction rate. This is tantamount to the re-introduction of sector-wide price controls last seen in the period 2007/8 in the country. Just like what happened during the 2007/8 period, the current price controls will lead to lower market supply, severe shortages and strengthening of the black market as EMCOZ Mon,” stated ECZ.
The act compels businesses to peg goods and service prices against the official exchange rate, which is lower than the black market rate.
Violators can be fined up to RTGS $50 000 or its equivalence in foreign currency.
“SI 27-2021 is not economically justifiable in the sense that not everyone or every business can easily access forex on the RBZ auction system. After all, the Zimbabwe dollar is currently overvalued on the auction market; hence its heightened depreciation in alternative markets. Currently, parallel rates range between ZW$130 and ZW$150: US$1.
With the official exchange rate at ZW$85.64, parallel market premiums have now increased beyond 50%. This implies that it is now 50% more expensive to buy US$1 on the black market relative to the official market. SI 27-2021 is a threat to business continuity and consumer livelihoods at large, as it will lead to steep price increases.
Despite the economic hurdles posed by the pandemic and the country’s “command economics”, the Reserve Bank of Zimbabwe (RBZ) still believes that the anticipated economic growth of 7.4% in 2021 is attainable, anchored, mostly on fiscal sustainability, good agricultural sector performance, and price and financial system stability,” noted EMCOZ.