Currency crisis bites

prices are pegged in US$ and indexed to the parallel market.”

The survey found that the exchange rate is the biggest cause of the price hikes, with manufacturers preferring US dollar payments because they do not see the local currency holding value.

The report pointed to payments from the government to contractors, and central bank’s payment of the Zimdollar component of surrender requirements for exporters, as a source of money supply growth.

“Government should carefully manage large payments to contractors to avoid surges in local currency liquidity,” said the report.

On Reserve Bank of Zimbabwe (RBZ), the report recommended that the bank more closely monitors all sources of money supply growth to contain exchange rate movements.

“Properly fund the RBZ to purchase export surrender which appears to be a major driver of money supply growth,” the report said.

“All surrender purchases must be done in a money supply-neutral manner. We recommend that the Ministry of Finance and Economic Development publishes the amount that will be allocated to the Reserve Bank for this purpose and how this will be raised by the ministry.”

Currently, exporters keep 75% of their export earnings in US dollar, and 25% is paid in Zimdollars.

The government recently dropped a requirement for 15% of any local US dollars deposits to be paid out in Zimdollars, a measure that had forced RBZ to print Zimdollars to pay for that component.

Government has opened the gate for the import of basic goods, a way to punish what officials see as “indiscipline” by businesses.

But the survey said this was suicidal: “Removal of duty and licenses on imports of basic commodities will harm the local industry, particularly those producing maize meal, toothpaste and washing powder.

“This primarily stems from the finding that these products are not competitive against imports.

“For maize, the producer price set by government of US$325/ton is higher than the US$200/ tonne currently prevailing in countries such as South Africa and Zambia.

The report found that local goods now dominate shop shelves, and warns that allowing imports will reverse this trend.

It recommended: “Reverse the opening of imports in the short run to protect the gains once realised by the local industry on the following products; mealie meal, toothpaste and washing powder as this has a negative impact on NDS1 aspirations on domestication of local value chains.”

Lifting import restrictions won’t save the Zimdollar anyway. It may, in fact, increase demand for US dollar.

The report added: “There is also likelihood of further depreciation of the Zimbabwean dollar as parallel market activities will increase as consumers exchange their ZWL to foreign exchange for them to be able to purchase imported goods.

“The net effect of this policy will likely be the acceleration of dollarisation in the country.”

—newZwire