Zimra chairperson, Willia Bonyongwe
ZIMBABWE Revenue Authority (Zimra) chairperson Willia Bonyongwe has called on the Zimbabwe Stock Exchange (ZSE) to consider introducing circuit breakers as a way of insulating the market against potential upheaval.
Circuit breakers are rules stock exchanges adopt to ease panic selling by taking steps to halt trading under extreme conditions that could trigger market disruptions.
The markets instituted circuit breakers in the wake of 1987’s “Black Monday” when global markets plunged. Circuit breakers were first used in October 1989, following a major stock market drop.
The ZSE is nearly 300 percent up since January, amid frenzied buying triggered by fears of creeping inflation.
“This has serious implications for growth in money supply, essentially because the bulls are not driven by fundamentals,” Bonyongwe, an economist and former chairperson of the Securities and Exchanges Commission of Zimbabwe, said in her commentary on Zimra’s third quarter revenue performance.
“There has been basically no corresponding growth in the underlying assets, making it very inflationary. It may be necessary for the ZSE to introduce circuit breakers in their trading to curb speculative behaviour.” Bonyongwe also voiced concern over rising inflation.
“During Q3, 2017, there were massive increases in prices arising from the three-tier pricing model adopted even by sectors that are regularly allocated foreign currency by the Reserve Bank of Zimbabwe (RBZ) displaying the level of greed in our economy,” Bonyongwe said.
“As it stands, the annual average rate inflation rate is projected to rise to between two percent and three percent in 2017. As a country using the US dollar as an anchor currency, this rate is very high and will worsen Zimbabwe’s export competitiveness.”
She, however, cautioned against price controls.
“The solution is in increased export production to generate US dollars and improve liquidity. Price controls should not be considered at all. They have failed before and will fail again. There is empirical evidence from many countries to learn from. They will not solve the current problem, they could worsen the already bad situation,” Bonyongwe said.
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