‘Build foreign currency reserves’

the case in Zimbabwe due to the use of the multicurrency system, having adequate stock is still critical in ensuring that the country is insulated from external shocks.
Emcoz president Mr Anthony Mandiwanza told delegates to the buy Zimbabwe conference this week that there was need to improve local business’ export levels, while at the same time reducing imports coming into the country.
“We still need to build up our foreign currency reserves by encouraging local industries to produce not just for the internal market but for the region and globally,” he said.
Traditionally, central banks use foreign currency reserves — held in either the United States dollar, and increasingly the euro — to support economic growth by ensuring there is a buffer to defend the local currency and also guaranteeing for liabilities such as external debt.
Improving the country’s export sector can result in a more positive balance of payments position for the country.
Statistics from the Ministry of Industry and Commerce indicate that Zimbabwe’s annual trade deficit stood at US$1,3 billion as at the close of 2011.
The figures show that export earnings increased to US$4,3 billion last year, while the import bill increased to US$5,6 billion.
The Government is however targeting to increase export earnings by 10 percent a year, which will see them rising from the US$4,3 billion recorded in 2011 to US$7 billion in 2016.
Treasury has since indicated that it is targeting an initial import cover of three months by the end of this year, which is however below the six months threshold target within the Southern African Development Community.
University of Zimbabwe professor of economics Tony Hawkins contends that improving the balance-of-payments position is the critical factor in addressing the country’s liquidity challenges.
The Emcoz president however stressed that local firms needed to improve on their strategies to become competitive.
“Our current business model emerged from the Zimbabwe dollar era, but has largely remained stuck in that old order,” said Mr Mandiwanza.
An improving foreign exchange stock will also assist the country in respect of its debt strategy.
Last month the Government launched its Zimbabwe Accelerated Arrears Clearance, Debt and Development Strategy, which is expected to minimise the negative impact of the present debt overhang.
Regional financiers such as the African Development Bank, for instance, have indicated that Zimbabwe has the potential to access greater financing facilities if it clears its unsettled debts with the institution.
Foreign exchange reserves are important indicators of ability to repay foreign debt are generally used to determine a country’s credit ratings.
Despite rebounding sectors such as the agricultural and mining sectors, Zimbabwe’s foreign currency situation has remained depressed due to the high level of imports that are coming into the country.
Improvement in the performance of both local industry and exports largely hinges on the implementation of the recently promulgated Industrial Development Policy and the National Trade Policy, which will run for the next five years.