THE Zimbabwean dollar has been dramatically losing value on the parallel market this week, further eroding the buying power of long-suffering citizens who must now grapple with the twin perils of a Covid-19 crisis and a rapidly deteriorating economy.
Last night, the Zimdollar was trading at rates ranging between ZW$57 and ZW$63 to the United States dollar, a massive decline which has left consumers dazed. Barely a week ago, the rate hovered around 1:45.
Although some economic commentators said there was no material link between this sharp fall of the local unit and the Reserve Bank of Zimbabwe’s introduction into circulation of a new ZW$10 note, there was enough reasonable cause to make that connection.
Much like a Covid-19 patient who has “underlying” conditions, Zimbabwe will find it extremely difficult to recover from the double whammy of a ruinous pandemic and an already severely weakened economy. Long before the arrival of the coronavirus, there were major structural weaknesses as amplified by low production, poor productivity and other fundamental imbalances. Even before this pandemic erupted, the United Nations warned that half the country’s impoverished population was in desperate need of emergency food aid. When you factor in low confidence in the Zimdollar and the unprecedented strain emanating from Covid-19, the volatile mix shows without doubt that downside risks and uncertainty will make it more difficult to rescue the troubled economy.
The government blundered in hastily re-introducing the Zimdollar against all economic logic. The local unit’s value has since been decimated. This is a country without foreign currency reserves — making it very vulnerable to external shocks.
Tinkering with currency policy is not advisable, even for the best of economies. For Zimbabwe, this has left the country badly exposed to currency turmoil. The currency now needs to be liberated. The fixed interbank rate — currently at 1:25 compared to the parallel market’s 1:60 — is unhelpful. Its only purpose is to create arbitrage opportunities for rent-seekers and those who enjoy vantage first-class seats on the gravy train.
The few remaining companies are in danger of total collapse. The central bank’s latest swoop on several bureaux de change and closure of EcoCash agent facilities in a desperate bid to tame currency volatility and illicit US dollar dealings has left firms struggling to mobilise forex.
The authorities should devise sustainable solutions to the currency crisis. The government has to get serious about servicing its debts with international financial institutions and bilateral creditors. The Transitional Stabilisation Programme clearly spelt out the macro-economic and structural reforms that the country had set for itself. These targets were not imposed on Zimbabwe by some imaginary monster from abroad; they were voluntarily set by the government. In terms of the overall reform agenda, there is a raft of economic and political reforms which have to be implemented. Unfortunately, the government has fared dismally on that score.