KEY POINTS
- CZI warns that US dollar shortages are threatening the viability of Zimbabwe’s ZiG currency.
- Businesses are struggling to access foreign currency on the official market.
- The closure of the Foreign Exchange Auction System has worsened the local currency’s instability.
The Confederation of Zimbabwe Industries (CZI) has raised alarms about the severe shortage of US dollars on the official market, warning that the crisis could undermine the acceptability of Zimbabwe’s new ZiG currency. This comes amid rising exchange rates on the parallel market, where the rate now sits above US$1 to ZiG 22, further stoking inflationary pressures in an already struggling economy.
Despite the assurances from authorities, industry experts say the continued shortage of foreign exchange is putting immense pressure on the local unit. The challenges, they argue, could worsen if immediate and robust reforms are not implemented.
Foreign currency crisis hurts local business
CZI has expressed concern over the mounting difficulty in accessing foreign exchange on the official market, a problem that is driving businesses to the parallel market.
“Some companies are struggling to obtain foreign exchange on the official market. This will likely undermine the acceptability and wide use of ZiG,” CZI stated, highlighting that the Reserve Bank of Zimbabwe (RBZ) acknowledged this issue back in July, noting a buildup in pipeline demand for foreign currency at banks.
As the economy remains highly dollarized, the scarcity of foreign currency has led businesses to favor transactions in US dollars over the local ZiG currency. This has particularly impacted sectors reliant on imported raw materials. For instance, leading sugar producer Hippo Valley Estates reported difficulties in balancing revenues earned in ZiG with its expenditures, as suppliers increasingly reject the local currency in favor of US dollars.
“The mismatch between ZiG-denominated sales and US dollar expenditures has put immense strain on businesses, forcing them to adjust prices and look for alternative ways to secure foreign currency,” the company said.
Closure of foreign exchange auction system raises concerns
The situation has been exacerbated by the government’s decision to shut down the Foreign Exchange Auction System, which had previously provided a lifeline for businesses in need of foreign currency. Analysts argue that this move has significantly hurt the stability of the local currency, pushing companies into the parallel market, where rates are much higher and more volatile.
According to a report by New Zimbabwe, the CZI noted that the government is currently the only major seller of foreign currency on the Interbank Market, which has worsened the situation for businesses that need hard currency for operations. “The lack of foreign currency on the Interbank Market has left companies with no choice but to seek foreign exchange through unofficial channels,” CZI warned.
Economists have pointed out that without more robust reforms to address the foreign exchange shortfall, the viability of the ZiG currency could be in jeopardy.
Need for urgent reforms
Business leaders and industry experts are calling for immediate reforms to restore stability in the foreign exchange market. Key among their recommendations is the reopening of the Foreign Exchange Auction System and efforts to increase foreign exchange inflows.
They also urged authorities to work closely with the private sector to find long-term solutions that can stabilize the exchange rate and restore faith in the ZiG currency.
As the economy grapples with these challenges, the CZI and other industry bodies have stressed that maintaining a stable currency is critical to ensuring economic recovery and growth in Zimbabwe.
