The member of Parliament for Harare East, Tendai Biti of the opposition party CCC, has challenged the Finance Minister, Mthuli Ncube, to provide a detailed explanation before Parliament about Statutory Instrument 127 and blended inflation.
SI 127 of 2021 amends the Exchange Control Act and the Bank Use Promotion Act, imposing heavy administrative penalties for breaches of special provisions of the Act.
The SI prohibits businesses from selling goods and services or quoting them at an exchange rate above the foreign currency auction system rate. It also punishes businesses for issuing clients with Zimbabwean dollar receipts for payment received in foreign currency.
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Biti has demanded an explanation from Ncube on how he crafted the method of mixing currencies in the country. The SI has been viewed as an attempt to curtail the exchange rate on the parallel market to stabilize the local currency. However, business leaders view it as a regulation that could lead to shortages of goods and akin to price controls. Regulations promulgated under Presidential Powers expire after six months, and permanent legislation is expected to be enacted to replace them before the expiry date. Biti said:
I stood up to speak about inflation. I know we have spoken about inflation before but the reason why I stood up is because of Statutory Instrument 127 of 2021 that speaks of inflation, which is calculated on goods and services in US dollars and RTGS.
In economics, inflation is a measurement of the rise in prices and only one currency is used, whether USD or RTGS or local currency, and you cannot mix currencies. So, the Minister of Finance who is a professor of economics should come to this august House and explain where he is getting this mixing of currencies, RTGS and US dollars, and why he is calling it blended inflation.
Speaker of the National Assembly Jacob Mudenda said Ncube should appear before Parliament to explain SI 127.
Blended inflation is a method used to calculate inflation by taking into account both foreign and domestic currencies in countries with multiple currencies in circulation.
The Reserve Bank of Zimbabwe uses this method to measure the rate of inflation by converting prices of goods and services into a common currency, such as the US dollar. The prices are then aggregated and weighted to calculate inflation.
Although blended inflation is considered more accurate than using a single currency, it can also mask the impact of inflation on specific sectors of the economy, which can lead to a distortion in the inflation data. Therefore, the use of blended inflation can be controversial.