Humanitarian agencies watch Forex auction anxiously

The lack of local currency in the Zimbabwean market ahead of the country's first auction of foreign exchange on Monday has caused some anxiety among humanitarian aid agencies. The World Food Programme (WFP) reported that in the past week local currency has only been available at the official Central Bank exchange rate, and NGOs have been unable to make payments to staff and other service providers. Financial aid coming into Zimbabwe will also face the impact of Zimbabwe's new official exchange rate, set at Zim $4,196 to US $1 by Monday's auction. The new foreign exchange rate is much lower than the value of the US dollar on the parallel market, where it trades at Zim $6,000. The new rate emerged from the first auction of foreign exchange conducted by Zimbabwean authorities in their attempt to control the gap between the official and informal parallel foreign exchange markets. The auction system replaces the state's fixed exchange rate. There has been widespread concern over how the new system - should it bring about sharp fluctuations in the exchange rate - would impact on humanitarian aid coming into the country. Zimbabwean newspapers and NGOs report that ahead of the auction on Monday, panicking dealers began selling foreign exchange, causing the value of US dollar to plunge by almost Zim $1,000 in the parallel market. Under the new system, which is reportedly modelled on the one used in Zambia, exporters can sell 25 percent of their foreign exchange earnings at a monthly auction. While traders can retain 50 percent of their foreign exchange in foreign currency accounts, they will have to surrender the remainder to the Reserve Bank at the current official exchange rate. A spokesperson for an NGO operating in Zimbabwe, who declined to be named, confirmed they had been experiencing problems related to the shortage of local currency. The country has been experiencing a severe shortage of foreign currency with which to buy fuel, food and medicine. Zimbabwean economist John Robertson said exporters would be hard hit by the new exchange rate, but expressed the hope that the foreign exchange auctions, which are likely to take place at least three times a week, would increase the value of the US dollar to at least Zim $7,000 to Zim $8,000 by mid-year. WFP has been attempting to ease the food crisis in the country amid an increasingly problematic economic situation, and had planned to provide over 59,000 mt of food to 3.5 million people in January. However, due to the shortage of resources and commodities, the organisation would only be able to provide about 34,000 mt. As a result, it had decided to revert to a ration of 10 kg of cereal and 1.5 kg of corn-soya blend to an estimated 1.6 million of the most vulnerable people. A further one million vulnerable people would only receive 10 kg of cereals each.