LIVINGSTONE MARUFU/ RYAN CHIGOCHE
Government’s move to enforce dedollarisation is likely to be short-lived as the general population and businesses prefer a stable currency, analysts have warned.
Most products are now priced in the United States dollar.
Securities firm Morgan & Co said Zimbabwe’s plan to de-dollarise may fail to materialise given the significant contribution of the informal sector to the economy.
“The general population regards monetary amounts not in terms of the local currency but in terms of a relatively stable currency. Zimbabwe has largely adopted a dual prices regime where most products and services are priced in US$,” securities and research firm Morgan and Co said.
“The local currency prices in most cases are pegged against a parallel market rate which is at more than ZWL$230 per dollar. The economy is largely informal and there has been a proliferation of informal businesses given the limited formal employment opportunities. These informal businesses charge in foreign currency.”
It added: “This suggests a trend of the informalisation of the local currency which will make it difficult for monetary authorities to police the exchange rate and dollarise. Fears of value destruction of the local currency have re-emerged as people are paying large premiums to covert the local currency back into the US dollar all to preserve value of their money.’’.
At the moment the macroeconomic challenges are pointing the economy towards full dollarisation as the lack of a clear dedollarisation road map is driving inflation rendering the Zimbabwe dollar useless.
However, the Reserve Bank of Zimbabwe (RBZ) has stuck to its guns saying the de-dollarisation road was the way to go.
RBZ governor, John Mangudya said: “Though many people want us to redollarise, between 2013 up to 2016, the economic growth was less than 3% which is not good for our economy. We started recording significant economic growth when we reintroduced our own currency,”.
Experts posited that the economy is redollarising on its own and the government should just follow suit.
But Mangudya said the country does not have enough US$ to support the redollarisation hence will stick to local currency and strengthen it so that it will be a currency of choice.
The informal economy has been identified as the key provider of employment in the country and about 80% of Zimbabwe’s working force is employed in the sector. The sector charges their products’ and services in foreign currency.
Treasury in 2020 announced a dedollarisation road map where they were looking to abolish the use of foreign currency in all local transactions. However Morgan and Co in their 2022 Economics and Strategy Note for 20 revealed that it is difficult for the economy to dedollarise given the current macro-economic situation which is pointing towards redollarisation driven by the informal economy.
With the country’s economy highly informalised, prices of goods and services have been on the rise in the local currency as it continues to weaken against the US dollar.
Businesses and service providers in the sector prefer payments in US dollar and are even offering discounts for US dollar while some are flatly rejecting Zimbabwean dollar payments.Well established businesses in the formal sector have also resorted to US dollar pricing in a move that is meant to assist the companies to meet their foreign currency obligations and cover import bills as the RBZ foreign currency auction system is failing to provide adequate funds.
More so tertiary institutions now require their fee payment to be in US$. Chinhoyi University of Technology in a circular seen by Business Times announced a requirement of US dollar payments for the coming semester without providing any option to pay in the local currency showing lack of confidence in the local currency.
‘’The University wishes to inform all returning Undergraduate students that online lectures commenced on Monday 14 February 2022 for fully paid up students only. Students are advised to register and pay fees immediately. The deadline is 28 February 2022.Students are encouraged to provisionally pay the 2021 level of fees- Sciences (US$495);Health Sciences usd535;Humanities US$470 until the government approves the 2022 fees. You shall be informed of any fees adjustment in due course,” read the Circular.
Adding to that, the government recently offered teachers a total of $175 of their salary in foreign currency on top of their local currency salary.
Several economic analysts have revealed that there is a need for the exchange rate issue to be addressed quickly so as to preserve the local currency as exchange rate premiums have grown significantly from an average of 36% in January 2021 to 91 % by January 2022 with the gaps expected to continue widening.
In 2020 the Treasury announced a de-dollarisation roadmap detailing how the economy will transition over the period. The de-dollarisation roadmap seeks to abolish payment of salaries in foreign currency by 2024 but the government recently offered teachers a US$ salary increment. The roadmap also suggested that all payments for goods and services will be in local currency by 2023.
