Effective policy evaluation is critical for policymakers to adopt a more efficient, data-driven objective, and strategic foundation as a bedrock for effective policymaking
By Ngoni Chihombori
Voila – the awaited 2nd entry of my ongoing “Dissecting the FX Auction Market Series” – in which I delve deeper, with the ultimate goal of providing my followers with a more in-depth yet balanced understanding of the implications of the Reserve Bank of Zimbabwe (RBZ) Foreign Exchange (FX) Auction System after a complete inaugural year of existence.
The current, Mthuli-led treasury dispensation occupying the New Government Complex, has been particularly, very proactive in its utilization of existing state propaganda channels to assert its strong presence in the local media to spread its doctrine of a successful story of a miraculous economic turnaround while harnessing the same media platforms as launch-pads for back-to-back, successive economic development strategic plans.
What has increasingly become a noticeable worrisome pattern throughout, however, has been the strikingly consistent absence of the complementary monitoring and evaluation infrastructure to retrospectively provide a quantifiable assessment of the overall impact of such policy initiatives.
Effective policy evaluation is critical for policymakers to adopt a more efficient, data-driven objective, decision-making strategic foundation as the bedrock for effective policymaking.
It is common cause that any Government policy worth pursuing, should ultimately guarantee as maximum attainable, an improvement in the quality of life experienced by the majority of individual constituents making up such an economy.
This series seeks to provide a monitoring and evaluation springboard from which scholars can commence meaningful conversations geared towards ascertaining the true impact of adopting the FX Auction as a tool to allocate scarce foreign exchange resources in the economy.
Since my introductory entry to this current series, there have been 2 more editions of the “Weekly FX Auction”, Weeks 54 and 55. For the purposes of continuation from a common basis for contrast and comparison, among subsequent entries within this series, any analysis applied throughout the series shall be limited to only the first 53 weeks of the FX Auction System.
In my series introductory entry, I highlighted in passing about a 38.9% variance between the official FX Auction-derived “ZWL per USD” exchange rate at which foreign exchange is apportioned on the weekly auction and the effective parallel market exchange rate at which the remainder rest of market players disqualified from partaking in the weekly auction access foreign exchange for whatever their respective business and personal needs.
US$52.31 million was allotted on the FX Auction Market during the 53rd week edition of the weekly auction, at an average weighted “ZWL per USD” exchange rate of 85.5097, against an effective prevailing parallel market “ZWL per USD” exchange rate of 140 ZWL units per unit of the Greenback.
What the RBZ effectively achieved in this 53rd week, was to subsidize every recipient of the total US$ 52.31 million, up to a cumulative tune of US$17.56 million, for every United States Dollar- denominated foreign exchange accessed on the FX auction market at the special RBZ rate of 85.51, against a more market reflective parallel market rate of 140.
The auction market bidder receives a $54.49 ZWL subsidy from the Central Bank per single US Dollar successfully secured on the 53rd week edition of the auction.
These exclusionary weekly FX procurement subsidies, available to only the “privileged elite” of our society amounted to a cumulative US$ 440.35 million over the first 53 weeks of the FX Auction inaugural year.
To a larger extent, It is a consequence of such retrogressive policies that the supposed gains due to the economy arising through the implementation of progressive policies like the elimination of unsustainable fuel and power subsidies, are neutralized and even negated by such counterproductive policy misgivings that have characterized the 2nd Dispensation.
To understand the funding sources and mechanisms used to guarantee the supply of the cheap, RBZ-facilitated foreign exchange, one needs to understand another of the retrogressive Central Bank policies punishing productive exporters.
The RBZ renders it mandatory to liquidate upon immediate receipt, various proportions of any foreign exchange received by an exporting Zimbabwean depending on their economic sector of operations and the specific surrender requirements applicable to such.
According to the Central Bank, involuntary surrender requirements on export proceeds and domestic foreign currency transactions have been the main source of the foreign exchange allotted on the FX Auction Market.
Involuntary liquidations have been responsible for 70% of the foreign exchange allotted throughout the initial year. . In what effectively passes as a successful bid to further suffocate the only goose laying the golden eggs, the Central Bank, through the February 2021, Monetary Policy Statement, further increased mandatory surrender ratio requirements from 30% to 40% across the broader economy to achieve the intended goal of increasing foreign exchange supply to the FX Auction Market.
Under the stewardship of Governor Mangundya, the RBZ has taken a more proactive approach in guiding the market towards a more controlled guided soft landing rather than expose the economy to more radical, purely market-determined sudden economic shocks towards the discovery of an efficient price discovery mechanism throughout the economy.
Practitioners should rather channel resources towards figuring out the optimal mix of free-market approaches to ensure efficient production points, with a right level of government oversight to ensure that while in our pursuit of ideal market-determined efficient production points, we do not lose focus of other important non-quantifiable yet equally important goals of ensuring an equitable distribution of economic wealth, while ensuring continued, uncompromisable universal access to indiscriminate human rights.
Direct and indirect Central Bank support for the FX Auction Market through direct the injection of foreign exchange and indirect mechanisms like surrender requirements policy, the RBZ is actively engaged in the direct interference with market operations and the inefficient reallocation of foreign exchange resources, worthy an annual cumulative US$ 1.516 billion, inefficiently reallocated on the FX Auction to the “privileged elite” who over the 53 weeks split among themselves US$440.35 million worth of “free” value donated by the Central Bank on a weekly basis.
One then further wonders, the benefits of maintaining an artificially managed FX market which only satisfies, at best, only 33% of the country’s annual FX requirements, at an annual cost of US$440.35 million in potentially productive resources misallocated within the economy, just for the sake of maintaining an artificial, manipulated notion of fake stability on a completely managed foreign currency market.
Does this fake stability come at a justifiable cost to the economy?
Ngoni Chihombori is an independent Macroeconomic Analyst based in Harare. He is reachable on firstname.lastname@example.org
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