Panic over a falling Zimbabwe dollar is spreading amid fears of a repeat of the economic unrest seen before the harmornised elections held in August as the government is allegedly printing and injecting massive amounts of money into the financial system and the frail economy in a dramatic uptick in market intervention.
Industry and households worry that the massive flow of Zimbabwean dollars leaving the Treasury at an accelerated rate could lead to a recurrence of the hyperinflation experienced prior to elections as the cost of essential goods and raw materials rises following a sharp depreciation in the local currency, despite government efforts to strengthen it.
This week, multiple Treasury sources told Business Times that the situation was just getting started because the Ministry of Finance and Investment Promotion had just released money into the market, including payments that had been overdue to contractors and other suppliers of the government.
Due to the government’s decision to stop paying farmers in order to implement a value for money program before elections, there was a severe liquidity crunch.
However, the government is currently pumping a ton of money into the market. The huge Zimbabwean dollars are then transferred from the recipients into hard currency in order to preserve value.
The move has resulted in the Zimbabwe dollar weakening 12.3% in value against the United States dollars.
This week, on the formal market, the Zimbabwe dollar was trading at ZWL$5 252.66:US$1 from ZWL$4604.6233 :US$1 three weeks ago while on the parallel market the local dollar was trading at between ZWL$7 500 and ZWL$8000: US$1 from ZWL$6 300:US$1.
“As soon as the election results were announced, the government started to make huge efforts to clear farmers and contractors payment backlogs resulting in the increase of money in the market,” one Treasury source told Business Times this week.
Oswell Binha, the CEO Africa Roundtable’s chairman, said that the government was printing money.
“Indeed, we are beginning to see upward pressures on the exchange rate and this is inevitable given the money supply levels in our country. To understand this fully, we need to answer a million-dollar question on how we end up in such a volatile situation as an economy,” Binha said.
He added: “ Elementary economics suggests that exchange rate deterioration and inflation in particular is a monetary phenomenon. Our current situation is benchmarked by excessive printing of money.
Reversing our curse needs prudent fiscal deficit management, avoidance of excessive printing [stop the unnecessary running of money printing machines] and adherence to the basic principles of money such as creating an environment which enables operation of market forces.”
The Confederation of Zimbabwe Industries president, Kurai Matsheza weighed in saying: “There is some movement of the Zimbabwe dollar liquidity in the economy as one can access Zimbabwe dollar loans from the banks or can receive a huge quantum of the local currency,” Matsheza said.
Fanwell Mutogo, CEO of the Bankers Association of Zimbabwe (BAZ), added that it appeared as though the Zimbabwe dollar had been seriously injected into the market as a result of the government’s initiative to encourage the use of the Zimbabwe dollar rather than the American dollar in order to control inflation.
Banks are now lending in Zimbabwe dollars.
Prior to the August 23–24 elections, banks had difficulty lending in Zimbabwean dollars.
“The banks have been disbursing loans throughout the year but both the Zimbabwe dollars and the United States dollars loans intake has intensified towards the end of August as the summer cropping draws closer and closer.
“We are happy to announce that the farmers can access both Zimbabwe dollars and the United States dollars unlike in the past where the United States dollars dominated with Zimbabwe dollars loans only accessed here and there,” Mutogo said.
The increased liquidity was also clearly visible after companies purchased US$1.1239m on Tuesday this week, a significant increase from the average weekly purchase of US$500 000 in August 2023.
The interest rates remained high for the business.
Contacted for a comment, Chief Director Communications in the Ministry of Finance and Investment Promotion, Clive Mphambela played down the claim saying: “Treasury didn’t make a huge payment but sticking to value for payment basis. Whenever we pay we ensure we don’t upset the market.”
“ What is happening right now is that many people who had halted their businesses for elections to be held are now utilising their money.”
He added: “Many projects are behind time to complete their projects hence people have accelerated the pace to meet the deadlines,” Mpambela.”.