Zimbabwe is facing a severe economic crisis, with inflation soaring above 300% and a chronic shortage of foreign currency. The local dollar, which was reintroduced in 2019 after a decade of dollarization, has lost more than 90% of its value against the US dollar. This has eroded the purchasing power of ordinary Zimbabweans and triggered frequent price hikes of basic goods and services.
The government has tried various measures to stabilize the exchange rate and curb inflation, such as introducing a weekly foreign currency auction system, banning the use of foreign currencies for domestic transactions, and imposing price controls. However, these interventions have failed to address the root causes of the problem, such as low productivity, high public debt, and poor governance.
A permanent solution is in the works
In a bid to find a lasting solution to the currency and price chaos, the finance deputy minister, Kudakwashe David Mnangagwa, told parliament on Wednesday that the Treasury is working on a comprehensive plan that will be announced soon.
“I would not want to pre-empty a monetary policy statement as well as fiscal policy announcements that will be coming, but would acknowledge that the increase in the exchange rates and inflation figures are something that we are fully aware of,” he said.
“There are actions that are being taken as far as crafting something that can be a permanent solution. So, I would like to leave it at this juncture without putting the cart before the horse, Hon. Speaker.”
Mnangagwa did not give any details of what the plan entails, but some analysts have speculated that it could involve a return to full dollarization, a currency board arrangement, or a new currency pegged to a basket of foreign currencies.
The deputy minister also warned retailers who are rejecting the local dollar and charging in US dollars only, saying that they are violating the law and will face consequences. He said the government is aware of the challenges faced by consumers and businesses due to the currency volatility and inflation, and urged patience as the authorities work on a solution.
The impact of the crisis
The currency and price crisis has taken a heavy toll on the livelihoods of millions of Zimbabweans, who are struggling to afford necessities and access essential services. According to the World Bank, more than half of the population lives in extreme poverty, and the COVID-19 pandemic has worsened the situation.
The crisis has also affected the business sector, especially the manufacturing and agricultural industries, which rely on imported inputs and equipment. Many companies have reduced their operations, laid off workers, or closed down due to the high costs and uncertainty.
The crisis has also hampered the country’s efforts to attract foreign investment and debt relief, as investors and creditors remain skeptical about the government’s commitment and capacity to implement meaningful reforms. Zimbabwe owes about $8 billion to external creditors, including the World Bank, the African Development Bank, and the Paris Club.
Positive view
Despite the bleak outlook, some observers see a ray of hope in the recent developments in the country. They point to the improved relations between the government and the opposition, the engagement with the international community, and the positive signs of economic recovery in some sectors.
For instance, the agricultural sector, which accounts for about 15% of the GDP and employs about 70% of the workforce, is expected to grow by 34% in 2023, according to the finance minister, Mthuli Ncube. This is due to the good rains, increased support to farmers, and higher commodity prices.
The mining sector, which contributes about 8% of the GDP and 60% of the export earnings, is also projected to grow by 11% in 2023, driven by the expansion of existing mines and the opening of new ones. The sector is expected to benefit from the favorable global demand and prices of minerals such as gold, platinum, and diamonds.
These positive developments, coupled with the government’s plan to address the currency and price distortions, could pave the way for a more stable and prosperous Zimbabwe shortly.
Source: New Zimbabwe
