THE Zimbabwe dollar tumbled by nearly 26% on the official market on Tuesday, the biggest collapse in one day since the auction system was introduced three years ago, while a government inquiry accused the State of driving the collapse of the local currency.
The Zimdollar now officially trades at 1 888 to the US
dollar from 1 404 a week ago, according to the results of the weekly
foreign-exchange auction run by the central bank, a drop of 25,5%.
It has depreciated by 34% since the beginning of the month.
On the widely used parallel market, it was trading at $3
500 to the greenback yesterday.
The currency’s collapse has led to calls by opposition
figures to pay salaries exclusively in US dollars, saying that the local unit
is no longer holding value.
A joint study by the Competition and Tariff Commission and
National Competitiveness Commission to investigate the cost drivers to the
recent price hikes showed that government was driving money supply and urged it
to relax exchange rate controls.
The report urged government to “liberalise the exchange
rate to allow market forces to determine prices and attain efficiency.”
“This measure is unlikely to lead to increases in prices as
manufacturers’ prices are pegged in the US dollar and indexed to the parallel
market rate,” the report said.
Zimbabwe has been battling a wave of price hikes on basic
goods and services.
The report noted that the exchange rate was the biggest
cause of the price hikes, and that manufacturers were preferring US dollar to
the Zimdollar.
The study used primary and secondary information and data
gathered from various sources which include Confederation of Zimbabwe
Industries manufacturing sector survey (2022), Trade Map, and interviews with
industry players.
According to the study, in March and April the Zimdollar
depreciated by 4% and 12%, respectively on the official market, but in May it
had depreciated by 34% as at time of publication, on Tuesday.
The commissions warned government against making large
payments to contractors to avoid surges in local currency liquidity.
“The study finds that price increases have been witnessed
in local currency terms while they have remained stable in US dollar in the
informal market,” the report read.
“The price increases were huge in May when the local
currency depreciated by 34% indicating that the price increases were exchange
rate-induced.
“Persistent depreciation of the exchange rate induced a
shock in the rate of inflation as firms index prices in US dollar.
US dollar denominated cost drivers were relatively stable
as compared to those charged in the local currency, suggesting a positive
relationship between the depreciating exchange rate and increases in local
currency denominated cost drivers.”
The report by the commissions show that the Zimbabwe dollar
depreciated by 109,22% from US$1:671,45 at the official exchange rate in
December 2022, to US$1:$1 404,80 as of May 16, 2023.
On the parallel market the Zimbabwe dollar depreciated by
222,58% from US$1:$930 to about US$1:$3 000 as of 16 May 2023.
“Prices in Zimbabwe tend to be adjusted in line with the
movement of the exchange rate, as businesses follow a cost recovery model, the
report said.
“The official rate
tends to move upwards on a weekly basis on the auction market, thereby
impacting on inflation developments.
“The month-on-month inflation rate, thus moved from -1,6%
in February 2023 to 2,4% in April 2023.”
Opposition Citizens Coalition for Change (CCC) leader
Nelson Chamisa said the country’s economic crisis could be fixed with ease and
urged that workers be paid in US dollars.
“Bad politics can’t deliver good economics.
“The state of the economy is the state of leadership.
Prices in the shops are wild,” he wrote on Twitter.
“Salaries are completely washed away. Just pay workers a
decent wage in US dollars.”
Former Finance minister and opposition CCC vice-president
Tendai Biti told NewsDay that dollarisation was the only way out for the
country.
“This is what we have been fighting for all these years.
For the stabilisation of the economy, Zimbabwe should float the Zimbabwe dollar
and dollarise,” Biti said.
“That is what is
required for change, to liberate dollarisation.”
Prominent economist
Gift Mugano said liberalising the foreign exchange market would help stabilise
prices, adding that it was a bit too late.
“This has been a long-standing challenge, which the government
has been maintaining, for when you control a commodity you will have a
challenge of black market,” Mugano said.
“As a country we are already in the exchange rate crisis
whereby when the government pegs or sets the auction system the black market
also moves.
“It makes sense to dollarise or to liberalise the foreign
exchange market.
“The situation in
Zimbabwe is like someone who wants to buy toothpaste or toothbrush to cleanse
teeth that are already decayed.
“The issue of liberalising the foreign exchange [market]
makes sense though we are a bit late as it is set to hit into the mud.” Newsday
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