THE surge in year-on-year inflation to more than 800% for July has continued to expose the monumental flaws in government’s decision to reintroduce the Zimbabwean dollar without the requisite fundamentals.
Statistics body Zimstats revealed that year-on-year inflation for July galloped to 837,53% up from 737,29% in June.
The runaway inflation is as a result of government’s ill-advised decision to reintroduce the Zimdollar as the sole legal tender in June last year through Statutory Instrument 142 at the expense of the multi-currency regime. This has resulted in the rapid freefall of the local unit against the greenback leading to the skyrocketing of prices and incomes and pensions denominated in the local currency massively losing value.
President Emmerson Mnangagwa waxed lyrical about the need for the country to have its own currency, declaring there would be no going back on the mono-currency regime. It would be well and good if the fundamentals were in place which include attaining a sustainable GDP growth rate of at least 7%; low and stable inflation; reducing the high debt ratios to very low and sustainable levels; increasing the level of savings and investments to at least 25% of GDP; reducing the balance-of-payments and at least six months import cover. The rash and ill-thought out decision by Mnangagwa’s government to introduce the local currency without meeting these vital benchmarks has backfired spectacularly.
The decimation of incomes and pensions as a result of runaway inflation has created a restive workforce which is demanding to be paid their salaries in foreign currency, a demand government cannot afford to implement. Health workers, who have been on strike for more than two months endangering the lives of patients at a time there is a surge in Covid-19 infections, have made payment of salaries in foreign currency a non-negotiable condition for returning to work. Similarly, civil servants are also demanding US dollar salaries. Efforts to pacify workers with Covid-19 allowances of US$75 have been futile.
Government’s decision to introduce dual pricing of goods in both local and foreign currency after legislating for the use of the Zimdollar as the sole legal tender is a tacit acknowledgement of the dismal failure of the mono-currency regime.
Finance minister Mthuli Ncube has laughably projected that inflation will drop to 300% by the end of the year. This will not happen with wishful thinking.
Former central bank governor Gideon Gono hit the nail on the head in a recent interview with this paper.
“At the risk of undermining my former colleagues at the Ministry of Finance and my successor at the RBZ which is not my intention at all, I believe that they have chosen the way or direction that this economy ought to take and that’s what the economy is taking but I wish they could have waited a little bit until we had built sufficient reserves to support, like they had said before, to three-six months import cover,” Gono said.
“Currently the local unit is taking a real battering akin to my days at the Apex bank and there is nothing the authorities can do about a market that has made up its mind to reject a particular currency.”
Need we say more?