Measures to curb illegal forex deals on cards
Government is working on a raft of measures to curb illegal and speculative foreign currency dealings that have resulted in prices sky-rocketing, Finance and Economic Development Minister Professor Mthuli Ncube, has said. Further, Prof Ncube said, Government was implementing cost-containment policies to reduce the budget deficit.
These include, among other measures, the introduction of the two percent electronic money transfer tax and reducing Government expenditure.
In an interview with ZTV on Thursday, Prof Ncube said Government was serious about economic reforms.
He said he would announce cost-containment measures in the next three months.
“I can assure the nation that the organs of the law are looking into that (illegal money market) and are going to deal with that to make sure that illicit behaviour or money laundering stops. Certain individuals who are doing that should curtail those activities and desist from such illicit behaviour.
“The parallel market is a symptom of an underlying problem with the fiscus, problems with response to the fiscus, problems and restrictions in accessing international credit lines — all those come together and they result in the emergence of a parallel market.
“All it does is reflecting that the way the economy is operating needs to be changed, competitiveness is an issue, but also it is a response to exchange rate policies and the policies that are being announced.”
Prof Ncube added: “There is foreign currency out there but it is bypassing the banking system. Those individuals, corporates have no confidence. In the past they put their money there (banks) they could not get it out. I want to assure them that this time it is different. How do you cajole and encourage corporates and people to bring back their money in the banking system and start rebuilding that confidence? We should allow exporters at least to retain some of the foreign currency they earn from exports.”
Prof Ncube explained the rationale behind the introduction of the two percent tax saying: “In trying to contain budget deficit, I said we have to do two things, one is revenue expansion and the other is cost containment and the introduction of two percent is only one leg of the measures. In other countries this type of tax is higher 10 percent or 15 percent but also we are going to institute cost containment measures. Government has also to do its part in terms of reducing expenditure. We are going to do that and in the next three months we are going to announce those measures to make sure that we meet the people of Zimbabwe half way and we contain the budget deficit so that we live within our means.”
Prof Ncube said both Government and citizens should live within their means to avoid the budget deficit.
“Internally real issues are that we are living beyond our means which means we are spending more than we are raising in terms of Government revenues, taxes primarily and other resources;” he said.
“Because of that we now have a large budget deficit which is in double digit and that is not ideal. The impact of a large budget deficit forces us to borrow domestically, we have been issuing treasury bills obviously well before my time and I am trying to make sure that we do not issue as much treasury bills if at all. Those treasury bills have high interest rates and they then squeeze out the private sector in that now banks can’t lend as much to the private sector because its easy for them just to buy the treasury bills with a certain interest rate and guarantee of repayment with almost zero default rate.
“It also has an impact on the monetary policy picture because it is causing growth in money supply which will become uncomfortable as it drives up inflation and then also impact the exchange rate outlook.”
He said continuation of the multi-currency system or joining the Rand union were all options on the table to address cash challenge issues.
He said joining the Rand union was not an overnight issue as there were certain procedures that had to be followed.