ZIMBABWE’S local currency yesterday shed as much as 33% in value to trade at US$1:RTGS$4,70 on the official interbank market in response to a nearly 50% fuel price hike.
Rates on the parallel market went up as high as US$1:US$6,20, a day after the Reserve Bank of Zimbabwe (RBZ) scrapped fuel subsidies.
The Zimbabwe Energy Regulatory Authority, which had initially directed fuel traders to maintain the old pricing regime, recanted later and hiked the pump price of diesel and petrol to ZWL$4,89 and ZWL$4,97, respectively.
Retailers responded to the fuel price hike by reviewing upwards prices of most basic goods with economists immediately warning Zimbabwe was fast sliding to the 2008 record hyperinflationary era.
Oil companies, which had long enjoyed a 1:1 exchange rate for fuel imports, will now have to compete for foreign currency on the interbank market after RBZ governor John Mangudya directed banks to ensure that the official exchange rate reflects market conditions.
Banks and companies had accused the central bank of manipulating the official exchange rate to keep the rate low compared to the black market.
“This is what we wanted for the market to be more liberal. We want the convergence between the parallel and interbank market. If the interbank market rate has gone up then the parallel market will devalue,” financial expert Persistence Gwanyanya said.
Economist Brains Muchemwa said the 1:1 peg had become the single most destabilising policy in the market alleging that the RBZ was printing money to buy foreign currency from exporters.
“Equally, it had become the most punitive implicit taxation on exporters who have had to contend with surrendering their foreign currency earnings at suboptimal exchange rates in order to appease the irrational national subsidy policy,” he said.
Over the past 18 months, authorities in Harare have failed to meet the country’s fuel requirements as foreign currency shortages become more severe.
Zimbabwe requires between US$100 million and US$120 million per month to meet its fuel requirements.
The latest round of increases came barely four months after President Emmerson Mnangagwa increased fuel prices in January by 150%, sparking protests, which resulted in the death of 17 civilians and reports of state-sponsored rape, abductions and torture in a ruthless clampdown by security forces.
The episode, which drew global condemnation, remains a scar on Mnangagwa’s stay in power.
Zimbabwe Energy Council executive director Panganai Sithole told NewsDay that the success of the latest move hinged on availability of funds on the interbank market.
“I believe that the governor (Mangudya) looked at one side, that is the issue of the liberalisation of the fuel procurement, but the fundamental question is: Are we going to have money on the intermarket? We want to see what impact the proposed US$500 million, if it is there, will have. We also have to know the extent of influence the RBZ or the authorities are going to have on the interbank market. Is it going to be a real free market or it is going to have some resemblance of controlling?” he asked.
On Monday, the central bank said it began drawing down on an Afrexim Bank US$500 million facility to inject into the interbank forex market to help increase the performance of the platform.
“If it’s (interbank market) going to have some resemblance of controlling, it means the US$500 million will just be waxed up, but we won’t have any other money for the integration of fuel, so we have to balance on both sides,” Sithole said.
“People will still have some fuel challenges in the long run because there won’t be any money coming in if the market is not fully liberalised and as long as production is not up, as long as other economic drivers are not fully functional, we will still have problems because we need to have a fully functional economy for us to continue importing fuel.”
One fuel operator, who spoke on condition of anonymity, said he was unsure if the new system would improve fuel supplies on the market.
“Whether it is interbank or the 1:1 rate, at the end of the day, what matters is what is going to be the price to the consumer? What is the availability of foreign currency to purchase the product? And obviously, that statement won’t clarify all those things,” he said.
“If the interbank is going to work then it must run without any conditions. We should just go and source our money (and) buy our product. This is what we used to do before all these problems started and that is all we want. We never used to talk about allocations or the 1:1… then I can concentrate on my business to do it in the best way, market it in the best way to customers.”
Most retail shops were busy adjusting the prices of goods upwards to match the fuel price hike which they said had a huge implication on the cost of distribution.
Prices of soft drinks, beer and several basic goods were being reviewed upwards in most shops yesterday after a wave of price increases last week due to the plunging of the RTGS$ to the US$, further eroding consumers’ incomes.
Hundreds of commuters were stranded in Harare last night after commuter operators hiked fares to up to $4 to suburbs such as Kuwadzana and Budiriro.
Commuters were stampeding to board the few Zupco buses available.
Confederation of Zimbabwe Industries president Sifelani Jabangwe said the RBZ directive would improve liquidity on the interbank platform.
“The expectation is that the price of fuel should come down. The parallel market rate could come down significantly. There should be a convergence on the interbank. We have been asking for a willing-buyer/willing-seller platform from the government. It’s positive to learn that the fuel sector will now get the fuel at the open market price rather than the 1:1 from the central bank,” he said.
“We believe this country has enough forex needed for the interbank to work. The country has $800 million in nostro accounts, the highest we have had since 2009. The use of RTGS$ has made us more competitive in the market. We should see more exports and the US$ balances growing.”
Economist John Robertson said the RTGS$ exchange rate would now dictate the fuel price going forward.
“Government had already decided, back in January, that the fuel price was too low and it caused the price to rise by adding large duties. The Finance and Economic Development ministry should now take off the additional duties to bring the price back into line with the costs of importing and distributing the fuel,” he said.
Robertson added: “If the higher duties are left in place, the impact of the exaggerated fuel costs could threaten the viability of many businesses as well as force inflation to very damaging levels. Zimbabwe’s production costs already make most Zimbabwean goods uncompetitive and if these costs are forced higher, the already serious unemployment will become much worse.”
Consumer Council of Zimbabwe chairman Philip Bvumbe said he hoped that the fuel price hike will not cause a dramatic price increase for all the products in the market.
“Last week, as you are aware, the parallel market rate went up to about 1:7 and all the goods in shops went up and there was panic buying. What we are urging consumers is that they must not go on a rampage of panic buying. Suppliers and retailers have been trying to reduce their prices because of the demand which has been low for some time. Let us be mindful that the more we have an artificial demand for products, the retailers and manufacturers will be justified to increase prices. We encourage people not to go on a panic-buying spree.”