Prices of basic goods have skyrocketed again, causing President Emmerson Mnangagwa to intervene and summon his Cabinet to help in stabilising the out of control crisis, Business Times can report.
It coincides with the relentless decline of the Zimbabwe dollar relative to all major currencies. The interbank rate has jumped to ZWL$11 108.74: US$1 yesterday from ZWL$10 152.39: US$1 on Wednesday last week following high demand of the US$ and rejection of the Zimbabwe dollar while the parallel market exchange rate stood at ZWL$18 500: US$1 from ZWL$16 000: US$1 last week.
Speaking to the Cabinet on Tuesday, President Mnangagwa also assigned the departing governor of the Reserve Bank of Zimbabwe, Dr. John Mangudya, and Minister of Finance, Economic Development, and Investment Promotion, Professor Mthuli Ncube, to steady the ship before it sinks any further.
According to him, the stability and expansion of the economy depends significantly on sound fiscal and monetary policies as well as the creation of a favorable business climate.
Economist Dr. Prosper Chitambara, predicted that the current wave of price increases will continue since the local currency is vulnerable to economic headwinds .
“It reflects the loss of confidence in the local currency as the economy continues to dollarise, therefore the demand for the United States dollar continues to rise at a time when the greenback supply is a bit low.
“There is a lot of speculative behaviour in the economy and this reflects the structure of our economy which is highly informal,” Dr Chitambara said.
He added: “Also most people prefer to use the United States dollar for transactions and as a store of value. What people are doing is that after earning Zimbabwean dollars, they will quickly convert it into the United States dollars and this puts a lot of demand on the greenback and this causes the depreciation of the local currency.
“I agree with the President as we need holistic and comprehensive measures which tackle fiscal , monetary and institutional reforms as well as the cost of doing business in the country.These reforms cannot be implemented overnight, there are bitter pills that we will need to swallow.”
According to Batanai Matsika, director of insights and research at Marks & Associates, companies should buckle up because the country’s inconsistent policies would likely cause further uncertainty.
“We rightfully projected that the economy will be saddled with policy shifts and uncertainties given the regulations, taxes and revenue measures introduced in the 2024 National Budget.
“We expected a lot of altering of both fiscal and monetary policies in 2024 which would undoubtedly usher in an unstable business environment. High levels of policy uncertainty will also lower investment, employment, and economic output. When that does happen, the market will do forward pricing due to a lot of uncertainties in the economy,” Matsika said.
Another economist Vince Musewe said: “This has happened before. It’s not new. We must ask why it keeps happening. Until we fundamentally change the structure of an economy highly dependent on primary production nothing will change. Ministers do not industrialise an economy entrepreneurs do and they must have confidence to invest in a stable economy,” Musewe said.
Economic analyst Victor Boroma said current challenges are a result of authorities’ policy missteps.
“It is good that the authorities appreciate the damage caused by printing money, fixing the exchange rates and over regulating the forex market. Our hope is that the scrambling involves tangible reforms to address the causes of instability such as fiscal expenditure excesses and quasi fiscal operations by the central bank,” Boroma said.
He added: “However it requires policy coherence between government departments, budgetary support, funding and implementation roadmap on each strategy to achieve the desired outcomes. Without those, achievement will remain difficult.
“The most important reforms to address the price and economic instability in Zimbabwe include an outright end to central bank quasi fiscal operations, reigning in on public expenditure to end budget deficits that create the need for parallel funding through the central bank and allowing banks to manage the market exchange rate.
“Any local currency would require confidence building measures and gradually building forex reserves. Anything short of real political will on these reforms is unsustainable.”
Economist Tony Hawkins said there was nothing new in the list of promises as real action and full implementation of proposed measures will help to change the fortunes of the economy.
“They are all worthy objectives but that is all they are.This administration ‘s track record speaks for itself , five years of one of the highest inflation rates in the world and a collapsed local currency.
“Recently the contagion from these toxic failed policies has spilled over into other currencies as well as the Zimbabwe dollar. The United States dollar is worth less in Zimbabwe than externally. This means that when a Diasporan sends dollars back to Zimbabwe they immediately lose value,” Hawkins said.
“The net effect is higher United States dollar prices in Zimbabwe than abroad, exports are less competitive while investment. Job creation and output growth are discouraged.
“Against this background the promises to boost growth and revive what remains of manufacturing are hollow. This situation is unlikely to change until there is an administration that prioritises economics not politics.
“The government cannot print, borrow,devalue and inflate its way to prosperity. We wait to see whether the promised package acknowledges these realities or simply kicks the can down the road again,” Hawkins added.
The panic by the government comes as a low income urban family of six now spends ZWL$6 242 051. 65 a month in Zimbabwe, up from ZWL$3 628 994.20 after cost of living jumped 72%, according to the Consumer Council of Zimbabwe (CCZ).
CCZ spokesperson Phillimon Chereni told Business Times that the depreciating local currency has eroded consumers’ purchasing power.
“The Consumer Council of Zimbabwe’s low income urban earner’s monthly basket for the family of six for the month of January 2024 is at ZWL$6 242 051. 65 from ZWL$3 628 994.20 for December 2023.
“The increase in prices is mostly attributable to weakening of the local currency which depreciated by 61.5% during the period under review,” Chereni said.