PROSPECTS of the Zimbabwe dollar stabilising against major international and regional currencies are still uncertain as the country’s foreign currency sources are still limited, Zimba
bwe Financial Holdings Ltd (Finhold) has said. In its monthly economic bulletin for April the bank said the Zimbabwe dollar had lost against most key currencies on the foreign currency auction, particularly the Japanese yen, South African rand and Botswana pula.
“In the short-term, prospects of a stable Zimbabwe dollar are uncertain, as the country’s foreign sources are still limited, if not declining,” Finhold said.
“Firstly, Foreign Direct Investment (FDI) has failed to materialise due to high inflation differentials and continued negative investor sentiment. Secondly, inflows from international donors have remained depressed on the back of increasing demand for imports.”
According to Ministry of Finance and Economic Development figures contained in the last Treasury quarterly report for last year, Zimbabwe’s current and capital accounts have been on the decline since 2000.
The last time both accounts recorded growth were in 1999.
In 2000, the current account recorded negative growth of US$138 million before shooting up to US$635 million.
The report also reveals that in 2000, the capital account recorded a US$289 million deficit and in 2001 it recorded a US$389 million deficit.
Finhold said the uncertainty was also being caused by the inflation differentials with trading partners while a rising import bill on the back of poor side fundamentals had continued to weigh against the local currency.
Although the central bank has introduced the auction system for foreign currency, bids have persistently surpassed the fixed supply from the RBZ which has seen the number of rejected bids increasing.
“Owing to excess demand for foreign currency, the Zimbabwe dollar has continued to depreciate since February leading to higher operating costs which may consequently lead to higher domestic prices,” Finhold said.
“In addition, the country capacity to generate foreign currency is still depressed, while corrective measures with respect to fiscal restraint still need to be implemented.”
During April Finhold said the money market was in persistent deficit during the month under review following successful financial bill tender issues by the RBZ. Shortages, which stood at $171,6 on March 1, worsened to $215 billion on March 15, before improving to close at negative $123,8 on March 30.