PHILLIMON MHLANGA
The collapse of the Zimbabwe dollar this week and runaway inflation have handed the central bank governor John Mangudya a fresh headache as businesses have been shattered with the economy brought down to its knees.
As Zimbabwe’s economy plummeted, it required between ZWL$80 and ZWL$82 to buy US$1 on the black market this week, meaning this is making it harder for local companies to import goods.
Shortages have also sunk much of the population in a deepening crisis
and many are struggling to survive.
Zimbabwe’s foreign exchange is expected to weaken further.
Annualised inflation hit 766% in April, a headache for companies and individuals that are struggling under rising costs as well as the hefty
devaluation of the Zimbabwe dollar.
Soaring prices have cut into social development gains.
The crisis has been compounded by low confidence in the local currency which has hit rock bottom.
“The (Monetary Policy) Committee expressed serious concern over the continued deterioration in the exchange rates that were widely
being used by the private sector,” Reserve Bank of Zimbabwe governor,
John Mangudya said adding the Monetary Policy Committee (MPC)
welcomed action taken by the bank to curb speculative trading in foreign
exchange using banking platforms.
Mangudya said the MPC also resolved that a formal market-based system of foreign exchange trading will be put in place, leaving half the population in need of food.
The runaway price rises which have seen annual inflation rate soaring is likely to remain at high level in the coming months as currency continues to plunge against the greenback.
Mangudya is targeting inflation to decline to 50% by end of 2020. This
will give currency some relief.
But, this is highly unlikely.
Mangudya has since imposed stiff sanctions to try to cripple it further.
With the Zimbabwe dollar spiralling downwards, the RBZ recently froze the EcoCash agent accounts for dealers believed to be using the accounts to buy foreign currency, which fuels downward pressure on the Zimbabwe dollar.
Early last year, Zimbabwe outlawed the use of foreign currencies in local transactions as part of efforts to stem speculative attacks on the Zimbabwe dollar. The exchange rate was initially pegged at ZWL$2.5: US$1.
But the faith in the home-grown currency continued to founder. The exchange rate closed the year at ZWL$25: US$1. Now, it has weakened by more than 3000% on the black market to ZWL$80: US$1.
But the exchange rate is almost 230% stronger at ZWL$25: US$1.
Mangudya said the local currency has been besieged by the speculative
tendencies.
The plunge in the currency underscores the shortage of foreign exchange in Zimbabwe whose gross domestic product contracted by 6.5% last year.
The economy is likely to contract by over 10% this year, according to several economists.
This comes as government’s efforts to de-dollarise the economy are floundering.
To ensure that foreign currency trades were monitored in real time, the committee urged the bank to expedite the implementation of the electronic foreign exchange trading system for compulsory use by Bureaux de Change, Mangudya said.
