Zimbabwe Economy Edges Closer to Full Dollarization Amid Rising Prices

Informal Sector Embraces USD, as Zimdollar Depreciation Fuels Shift

by Ikeoluwa Ogungbangbe
Zimbabwe dollarization

The Zimbabwean economy is increasingly leaning towards full dollarization, with the majority of transactions, particularly on essential food items, being conducted in United States dollars (USD). According to recent data released by the Zimbabwe National Statistics Agency (ZimStat), approximately 83% of transactions for key food purchases at the national level are being conducted in USD.

The ZimStat report highlighted that transactions in USD were even more prevalent in rural areas, accounting for 85.6% of key food purchases, compared to 80.1% in urban areas. The remaining portion of transactions involved the Zimbabwean dollar (ZWL$) and the South African rand (ZAR), with a small percentage carried out using a combination of currencies.

This shift towards dollarization is evident amidst reports of the informal sector rejecting the dual pricing regime, opting instead to exclusively conduct transactions in USD. Deputy Minister of Finance, Economic Development, and Investment Promotion, Kudakwashe Mnangagwa, acknowledged this trend during a parliamentary session, noting that while government policy allows for dual pricing, the informal sector seems to be favoring USD transactions.

Mnangagwa emphasized the need to address inflation and exchange rate disparities, acknowledging that the multi-currency regime presents challenges in preserving the value of the local currency. He indicated that the government is crafting measures to stabilize the exchange rate and preserve the value of the Zimbabwean dollar, with upcoming policy announcements expected to tackle these fundamental issues.

Despite government assurances, concerns persist over the continued depreciation of the Zimbabwean dollar, which has led to sharp increases in the prices of basic commodities. The Consumer Council of Zimbabwe reported a significant rise in the family basket cost due to currency depreciation, further exacerbating the economic challenges faced by citizens.

President Emmerson Mnangagwa reiterated the government’s commitment to implementing policies aimed at curbing price increases, stabilizing the foreign exchange rate, and maintaining the value of the local currency. However, economists like Vince Musewe stress the importance of addressing underlying issues eroding confidence in the local currency, including corruption, political instability, and economic uncertainties.

Musewe emphasized the need for stable policies and the restoration of confidence in the system to mitigate the reliance on foreign currencies like the USD. He highlighted that price instability is symptomatic of broader issues affecting the economy, and addressing these concerns should be a priority for sustainable economic recovery.

Overall, the shift towards full dollarization reflects the challenges facing Zimbabwe’s economy and underscores the urgency for comprehensive reforms to restore stability, foster investor confidence, and promote sustainable growth.

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