HomeBusiness DigestZimbabwe should aim for macro-economic stability

Zimbabwe should aim for macro-economic stability

Melody Chikono

ZIMBABWE should hasten to address the currency volatility in the economy if the country is to attain private sector-led growth which is key to macro-economic stabilisation.

While there are other critical needs for the country to achieve the stabilisation, a joint needs assessment on Zimbabwe by the World Bank, African Development Bank and the United Nations points to the need for the government to bring an end to the parallel market in which various exchange rates have led to instability in the market characterised by skyrocketing prices and periodic shortages of basic goods.

The country last year introduced an interbank forex market in a bid to formalise the trade of foreign currency. Government banned the multi-currency regime which the country had relied on for the past decade through Statutory Instrument 142 of 2019, making the local unit the sole legal tender.

The interbank market also has various rates depending on the bank, although the central bank governor last year hinted on plans to introduce a national interbank market to unify the rates.

However, the average interbank rate hovered around US$1:ZW$17 and have remained unattractive, making the parallel market, currently around 1:24, the preferred choice.

According to the report, private sector-led growth will subsequently generate more revenue and foreign currency earnings.“For this to happen, there is a need to stabilise the financial sector and manage exchange rates. The financial sector stabilisation can be assured by limiting government borrowing from the banking sector—which involves both limiting future borrowing and dealing with the current large amounts of government borrowing. Furthermore, on the exchange rate issue, there is a need to unify the various exchange rates, and the authorities will need to decide on a sustainable arrangement,” read part of the report.

The report went on to say this could be complemented by an International Monetary Fund (IMF) programme.Zimbabwe failed to meet the initial targets of an IMF Staff-Monitored Programme targets and the plan is now in limbo as protracted negotiations between the Bretton Woods Institution and government which are yet to be concluded.

Given the dire state of Zimbabwe’s economy, the report stated that immediate savings were needed for macroeconomic stabilisation in the short run.

“Fiscal consolidation will require actions to reduce the public sector wage bill and agriculture-related expenditures. In addition to various measures proposed by authorities in the 2018 national budget statement, the required measures on the wage bill could be applied across the board, with equal impact on all staff at a given level,” read the report.

This came as Finance minister Mthuli Ncube, in an interview with Bloomberg this week at the World Economic Forum in Davos, Switzerland, revealed the government’s intention to allow wages to catch up with the foreign exchange rate following the abandonment of the multi-currency regime for the Zimbabwean dollar.

While immediate actions are needed, sustainable reductions in the public sector wage bill will also require an assessment of government functions as well as an assessment of the staffing required to deliver the associated goods and services.

Zimbabwe has been struggling to address the current fiscal challenges that are a source of macro-economic challenges such as liquidity shortages, the parallel market exchange rate and an unsustainable fiscal deficit.

Recent Posts

Stories you will enjoy

Recommended reading