THE Zimbabwean dollar (Zimdollar) — which comprises the
RTGS$, bond notes and mobile money — this week dramatically weakened peso-style
against the United States dollar and other base currencies as the authorities
struggle to defend the increasingly unstable domestic currency which returned
only 87 days ago.
The US dollar was yesterday trading at ZW$20 on the
parallel market, while it was around ZW$14 on the interbank forex market.
Government freed the exchange from February 20 as part of
currency refroms. It then brought back the hitherto demonetised Zimdollar on
June 24, unexpectedly banning the multi-currency system which ensured exchange
rate stabilisation and ended hyperinflation in 2009.
For the past 87 days, government has been desperately
trying to defend the local quasi-currency through stifling money supply and
high interest rates, but in vain. The currency has been battered by poor
economic growth, inflation, current account deficit and lack of confidence. The
collapse of the Zimdollar has made the peso crisis look mild.
Since last year, Argentina’s monetary crisis has been
deteriorating amid a severe depreciation of the peso, caused by high inflation,
an appreciation of the US dollar in the local markets, and other domestic and
international factors.
The crash of the Zimdollar has had devastating and
far-reaching implications on the economy which has already descended into
recession with government officials projecting a growth rate of less than -2%.
The International Monetary Fund (IMF) — which was in town
this week — has warned that the economy could contract by -5,2%.
An IMF team from Washington DC was in the country for the
first assessment of the Staff-Monitored Programme (SMP) which runs from May
this year to March next year at a time government finances are in a shambles,
with a number of SMP set targets having already been missed.
The IMF delegation, which left the country yesterday, met
President Emmerson Mnangagwa, Finance minister Mthuli Ncube, Foreign Affairs
minister Sibusiso Moyo, Reserve Bank of Zimbabwe governor John Mangudya,
officials in the Office of the President and Cabinet as well as directors in
all key ministries.
It also met business, labour, civil society and the
opposition.
The Zimdollar was brought back without macro-economic
stability.
According to the Maastricht criteria, stability is measured
by five variables: low and stable inflation; low long-term interest rates; low
national debt relative to GDP; exchange rate stability; and low deficits.
Reserves and confidence are also central currency stability.
Currency and exchange rate volatility have had a serious
impact on the economy and people’s lives.
Standards of living for ordinary Zimbabweans and business
operations have deteriorated, amid tumultuous price escalations and rapid
erosion of incomes. Annual inflation has surged from 31,01% in November 2017
when Mnangagwa took office to around 288,62%.
However, economist Steve Hanke yesterday said inflation in
Zimbabwe has in reality reached 851%. The tumbling Zimdollar has resulted in
the skyrocketing of prices of basic commodities such as bread and mealie-meal.
Due to exchange rate instability and differentials,
salaries and wages have been eroded almost 20-fold in real terms. Company
balance sheets, value, stocks, pensions and savings have also been badly
eroded.
The poor have been the hardest hit by price spikes, rising
inflation and eroding incomes. The situation has been exacerbated by exchange
rate movements amid signs of worsening poverty levels.
The depreciation of the local quasi-currency is making
imports even more expensive, undermining prospects of achieving a period of
sustained economic growth and rendering the Vision 2030 target of attaining
upper middle-income status a pipedream.
The fall of the dollar has resulted in property owners or
landlords abandoning the rapidly depreciating currency and charging rentals in
foreign currency to preserve value.
Zimbabwe Federation of Trade Unions secretary-general Kenias
Shamuyarira said the rapid depreciation of the local currency will worsen
hardships for workers.
“Obviously, the depreciation of the local currency means
immense and increased hardships bedevilling the entire labour force,” he said.
Confederation of Zimbabwe Industries president Henry
Ruzvidzo said the tumbling currency has fuelled instability in the economy.
“The depreciation of the local currency is causing
inflation and creating a very unstable operating environment as confidence is
fast eroding,” he said. “This increases country risk and discourages
investment. The situation is unsustainable.”
Former Finance minister Tendai Biti, who is also
Parliamentary Portfolio Committee on Public Accounts chairperson, said the
depreciation of the local currency is as a result of bad governance and a
confidence deficit in the economy.
“We are not producing. There is no productivity. There is
no confidence in the Zimbabwean dollar. So what is happening is just a
vote-of-no-confidence in this currency,” Biti said.
“There is disequilibrium in the economy, there is too much
money chasing too few goods — hence high inflation. This is what happens when
you increase money supply into the economy. These guys are overspending. They
are creating more money supply and the rates shoot up. This is what happens
when you demonetise the US dollar, you commodify it.”
Biti said the crisis requires a political solution rooted
in inclusivity and legitimacy to address bad governance and poor policies.
“Whatever they do, it won’t work, there is no confidence in
Emmerson Mnangagwa and Mthuli Ncube. Mnangagwa and his government have been a
disastrous failure,” Biti said.
However, Ncube said last night there are various ways to
contain the tumbling of the local currency.
“I have been focussed mainly on the Harare water situation
and not paying much attention on that, but as monetary and fiscal authorities,
our job is to try and stabilise the situation. There are many ways we can
manage this, by managing liquidity and fine-tuning the interbank market rate,”
he said. “You should also recall that this is the end of the tobacco selling
season and foreign inflows are not very strong.”
Ncube also said that the rules on EcoCash agents, who have
been accused of charging extortionate rates in the selling of cash, should be
tightened to manage the crisis.
An economist who preferred to comment off record said the
situation was spinning out of control.
“It’s becoming an unmanageable crisis. Government has tried
to use interest rates; higher interest rates encourage hot capital flows and
demand for currency.
This causes an appreciation of the currency, but in this
case it has come to naught,” the economist said. “The other problem is poor
economic growth; higher growth tends to cause an appreciation in the currency
as markets expect higher interest rates when growth is rapid.
“Zimbabwe is reeling from high inflation and this makes our
exports less competitive and reduces demand for currency, while causing
depreciation.
“Add to that lack of confidence in the economy and the
current account deficit. Our large current account deficit is worsening
currency depreciation as money continues to flow out to buy imports. It’s a
mess.” Zimbabwe Independent
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