Old Mutual Investment Group (OMIGZIM) says the country needs to continue implementing measures that build foreign reserves, improve confidence and exports and reduce external debt levels for sustained stability and growth.
Over the years, the economy has been facing serious foreign currency shortages partly resulting from subdued exports. In response, the apex bank introduced weekly foreign currency auctions to improve access to US dollars. While the coming in of foreign currency auction system managed to ease the situation a bit, it is reportedly that it takes weeks for successful bidders to receive their allocations.
Further delays in settling allocated amounts, Proplastics recently said, will result in the worsening of its foreign currency exposure.
Backlogs in foreign currency settlement on the auction system have resulted in the parallel market premium increasing above 50% as importers seek quick access to foreign currency on the alternative market.
Minister of Finance, Professor Mthuli Ncube is targeting to set aside close to 50% of US$961 million worth of Special Drawing Rights (SDRs) as reserves to support the local currency. The remaining balance is expected to be deployed towards the purchase of vaccines, equipping of hospitals, construction of schools, road rehabilitation and other infrastructure projects.
There are also plans to set up a revolving Fund to avail funding to the productive sectors of the economy such as the manufacturing, agriculture, and mining sectors.
In its latest monthly report, OMIGZIM acknowledged that the SDRs allocation is a positive development for the economy which has been isolated from international capital markets.
“This notwithstanding, the allocation is seemingly insufficient to cover the funding gap in the economy and sustain support for the local currency,” it said.
The foreign currency settlement backlog on the auction system is reportedly US$175mn or about two months based on average weekly allocations.
It said there is scope for the authorities to utilise a portion of the SDRs to clear the backlog.
“However, the use of SDRs to fund the backlog is unlikely to be a sustained solution to the funding constraints on the auction and economy at large.”
In its outlook, OMIGZIM stated that the SDRs allocation and the positive rainfall forecast will have a positive impact on the economy. “However, Covid-19 remains a big risk to the economy considering possibilities of new waves and new variants. We maintain a cautiously optimistic view on the outlook.”
The country is targeting to inoculate a total of 10 million people or 60% of the population to achieve herd immunity. But, the vaccine roll out program has been slow mainly due to resistance by some members of society and the global supply constraints for the jabs – Harare