'Zim dollar on its way out'
ZIMBABWE recorded the worst currency performance in the world in 2023, losing value by 90, 83%, an indication that efforts to stabilise the local unit have failed, a leading researcher has said.
According to research firm Fincent Securities, the country is currently facing market turbulence, with a growing gap between the official exchange rate and the parallel market rate.
Since January 2023, the Zimbabwe dollar depreciated by -90,83% and the parallel market premium increased from 41,5% in December 2022 to 72% in December 2023.
As of Friday, the local currency was trading at $14 000 against the greenback in the parallel market. On the official exchange rate, the figure stood at $8 999.
“The currency to continue on the slippery slope fueled by inflation and money supply. Arguably, the ZWL is on its way out,” the report titled 2024 Market Outlook: Seeking Stability Amidst Uncertainties reads in part.
“Despite a brief period of exchange rate stability in the first half of 2023, this proved transitory as rates began escalating again in the third quarter, and new tax measures implemented by the government are contributing to this increase.”
Fincent said the economy has dollarised itself, with 80% of local transactions in United States dollars amid waning confidence in the Zimbabwean dollar.
Efforts to stabilise the Zimbabwean dollar included the introduction of gold-backed digital tokens.
According to research firm Fincent Securities, the country is currently facing market turbulence, with a growing gap between the official exchange rate and the parallel market rate.
Since January 2023, the Zimbabwe dollar depreciated by -90,83% and the parallel market premium increased from 41,5% in December 2022 to 72% in December 2023.
“However, all these measures have failed to strengthen the local currency,” the report said.
“The economy is still suffering from a failed monetary framework. There have been no attempts to change anything.
“Calls to dollarise have been ignored and the ambiguity on the de-dollarisation programme continues to increase the country’s risk profile despite the extension of the multi-currency to 2030.”
Experts suggest that the government needs to prioritise addressing inflation and currency stability to stabilise the economy and achieve sustainable economic growth in 2024.
The research firm said the year 2023 brought about one of the stormiest economic periods of the past five years.
According to American economics professor Steve Hanke, Zimbabwe suffered consistent record-breaking inflation rates, at times exceeding 900% and reaching a peak of 1 000%.
In his January update, Zimbabwe
was leading the pack with 1 024% per year, followed by Argentina at 198%, Syria (153%), Lebanon (112%), and Venezuela (103%) as the world’s top five inflators.
In view of the inflation headache, the authorities changed the inflation calculation method two times during the year 2023.
The authorities in February introduced the blended inflation exchange rate in their view it represented the true cost of living in Zimbabwe where prices and household incomes are also in both US dollar and local currency.
Starting from September 2023, Zimbabwe National Statistics Agency altered its inflation calculation methodology, transitioning from arithmetic to geometric aggregation of blended Consumer Price Indices (CPIs).
Additionally, the agency rebased the CPI indices from July 2020 to August 2023.
“These changes resulted in a notable shift in Zimbabwe’s inflation profile. The authorities have resisted pressure to give out the US dollar and local currency inflation rates along with the official blended rate,” Fincent noted.
“Many individuals solely earn income in local currency and require specific inflation figures for practical purposes such as assessing pay raises.”
Moreover, Fincent said investors on the Zimbabwe Stock Exchange, where prices and yields are denominated in local currency, also need accurate inflation figures.
“This information is crucial for determining real capital gains, understanding changes in dividends in real terms, and overall assessing the viability of their investments,” it said.