De-dollarisation plan in flames
LIVINGSTONE MARUFU
The government plan to de-dollarise the economy is up in flames as the United States dollar dominates the market in what experts say is near full dollarisation.
Government four years ago banned local trading in foreign currencies through statutory instrument 142 of 2019 and re-introduced the Zimbabwe dollar which had been ditched in 2009 due to a myriad of challenges including hyperinflation.
However, authorities backtracked on the move saying it would work on a plan to enforce confidence in the Zimbabwe dollar and ruled out a return to using the United States dollar as the official currency in the economy saying there wasn’t enough greenback in the country.
In his 2023 monetary policy statement (MPS) last week, the central bank governor, John Mangudya, appeared to be admitting that the greenback was dominating the economy again, contrary to the 2019 sentiments.
He revealed more than 70% of domestic expenditure was now in United States dollar, reflecting a highly dollarised economy once again.
Mangudya also acknowledged that household spending in the consumer price index basket was now 76.56% skewed towards foreign currency transactions.
As such, Mangudya suggested that ZWL$ inflation was no longer a true representative of the cost of living in Zimbabwe further suggesting a blended inflation which should be the official rate for Zimbabwe.
Mangudya also revealed that foreign currency deposits were now dominant.
Money supply grew 391.88% to December attributable to the impact of a weakening exchange rate on growing foreign currency deposits.
The RBZ also reduced interest rates to 150% from 200%.
Mangudya also said the RBZ has put in place a standardised export retention at 75% but there are growing calls from experts to do away with that.
Economist Gift Mugano said: “In the MPS, the RBZ acknowledges that +70% of transactions are now in United States dollars. It defies logic to maintain both domestic and export retention when the economy has dollarised.”
“The new domestic export retention will not be enough deposits of FX since firms will suffer exchange rate losses, especially in the face of exchange rate disparities,” Mugano told Business Times this week.
The Zimbabwe Tobacco Association CEO, Rodney Ambrose said: “There is no need for forex retention in the tobacco industry as the economy has dollarised. “We need more forex to procure inputs.”
Securities firm, the FBC Securities Private Limited weighed in saying: “Dollarisation is now a reality and the majority of companies are recording increased hard currency revenues.
“The government should take cautious cognisance of this development, providing an enabling environment that will foster economic growth and development.”
Another securities firm, Inter-Horizon Securities said the pivot of the economy to dollarisation has also been evident in money supply dynamics.
“The 2023 MPS seems to be a continuation of the stance taken by the government in 2022, with some moderations to relieve corporates and acknowledging dollarisation penetration,” the firm said.
Analysts also warned there are multiple challenging dynamics threatening the inflation outlook and these include the global inflation shocks, geopolitical tensions caused by the ongoing Russia-Ukraine war, rising food and energy prices, supply chain disruptions, and the volatile parallel exchange market.
