Online Reporter
WITH the ZiG now a stable currency backed by rising gold and foreign currency reserves in excess of the amount in circulation, it is being used more often in business and commerce, and generally within the formal private sector.
However, to keep rising acceptability at the top of the agenda, the Government itself needs to demonstrate its confidence in the currency.
While payment of local contracts in ZiG helps, the true test is the Government’s willingness to accept ZiG payments for taxes and to go further by requiring certain taxes to be paid in ZiG.
Already, at least half of all business taxes — the quarterly payments required from companies — have to be paid in ZiG, even if the company operates entirely or largely in US dollars.
This goes beyond the general requirement that taxes be paid in the currency used in transactions for such taxes as VAT, or in the currency in which profits are generated.
A company generating all its profit in ZiG would, of course, pay its profit tax entirely in ZiG.
The measure requiring those companies whose revenue is concentrated in US dollars, such as major exporters, to pay half of their profits tax in ZiG was designed to increase demand for the local currency. This ensured a better flow of foreign currency into the interbank exchange system as exporters sold foreign currency to raise ZiG to pay taxes.
While the original policy was designed to increase demand for the ZiG, make it more accessible and increase the percentage of export earnings traded through the banking system for importers to buy, the policy has also become one of the measures used to increase the acceptability of the ZiG.
The main reasons for more than 18 months of very low ZiG-denominated inflation and a very stable exchange rate stem from rising reserves, now moving towards two months’ import cover, the independent and efficient foreign currency trading system within the banking sector, the efficient national payments system, and the strict conservatism of both fiscal and monetary policy.
These policies are co-ordinated to work together, with zero monetary financing of the budget.
There is no Government overdraft at the Reserve Bank of Zimbabwe, for example, and no contribution by the Reserve Bank towards creating revenues for Government spending.
The same conservatism has seen interest rates remain well above inflation rates, even as interest rates fall, making manipulation and arbitrage unprofitable.
The stable exchange rate in the banking sector has seen the black-market premium fall to around 20 percent, and it is still declining, as that market ceases to be a major economic player and becomes little more than a convenience-based operation.
Reserves are still below the three months’ import cover usually regarded as a prudent safety net, but despite rising imports, they are also increasing.
Government commitment includes payment of half of all mining royalties into the reserves, along with five percent of export earnings, so few doubt that the reserves will soon reach, for the first time in more than 60 years, the levels required to ensure an exceptionally stable local currency under almost any circumstances.
The final push must now focus on encouraging people and businesses to use ZiG more often and to use banks, rather than blocks of cash in safes, to provide for their import and other foreign currency requirements.
The formal sector is already using ZiG for 45 percent of its operations, although the informal sector has a much longer way to go, and measures will soon be needed to increase ZiG usage in that sector.
The Mid-Term Fiscal Policy Review Statement is due to be presented in Parliament this week and, without revealing details, Finance, Economic Development and Investment Promotion Minister Professor Mthuli Ncube has already indicated that more taxes will be required to be paid in ZiG, as the Government once again demonstrates its confidence in a respectable local currency and takes the lead in expanding its use.
The Reserve Bank, with Government backing, has stressed that a return to a mono-currency economy will not be driven by timelines or deadlines, but rather by natural processes that see ever-increasing use of the ZiG until it becomes dominant enough for the transition to be formally completed.
With the increasing acceptability and use of the ZiG in the economy, the Government needs to adjust its taxation policy accordingly, ensuring that it continues to lead in promoting the acceptability and use of the ZiG and does not fall behind some of the major private-sector taxpayers.
