After soaring to an astronomical 600 percent exchange rate against the United States dollar on the black market last week, bond notes rates tumbled to about 150 percent early this week. But not for long.
The exchange rate spiked again yesterday to around 300 percent, exposing government to the matrix of markets. The real time gross settlement (RTGS) against the greenback even went up to between 400 and 450 percent yesterday from about 200 percent last week.
The worsening financial crisis was triggered by the recent monetary and fiscal measures delivered by central bank governor John Mangudya and Finance and Economic Development Minister Mthuli Ncube respectively has left many tightening their belts as Zimbabwe undertakes austerity measures. In coming up with the policy documents and measures, the financial gatekeepers’ aim was mop up excess liquidity and cut government expenditure which appeared uncapped during the first six months of the year.
The theory of talking down the stubborn black market rates seems a futile exercise for as long as the surrogate bond note and electronic methods of transacting are in existence. The exercise to stabilise the economy will also be a pipe dream if the black market continues to thrive.
For an economy with a trade deficit pegging exchange rates is all but a toll order for government which is currently grappling to meet foreign currency requirements. President Emmerson Mnangagwa has admitted that there will be no swift remedy to the liquidity problems, and economic crisis.
“Whatever some may claim, there are no silver bullets or quick fixes. There is no need to panic, and government is guaranteeing the availability of all essential commodities, including fuel,” he said in a statement this week.
In our view the new mantra must shift to emphasis on production rather than depend on the speculative arena to arrest the galloping inflation and cost of living.
The austerity measures by Ncube shook the market which left many ordinary Zimbabweans in a precarious position especially after the introduction of a 2% tax on electronic transactions.
Previously, government was charging a flat five cents per transaction. While the government can still pursue its agenda to collect maximum revenue through taxes and reduce government expenditure, there is need for immediate stimulus in local production so as to cut costs incurred through importation of basic commodities.
There is need to incentivise and boost production through availing of funds to the productive sector and revive industrial activity.
Institutions such as the National Social Security Authority (NSSA) must be encouraged to fund the productive sector.
Production in Zimbabwe has generally decreased and the economy has shrunk significantly after 2000, resulting in a desperate situation for the country and an estimated 95% unemployment rate. The University of Zimbabwe estimated in 2008 that between 2000 and 2007 agricultural production decreased by 51%. Production of tobacco, Zimbabwe’s main export crop, decreased by 79% from 2000 to 2008.
The agricultural and mining sectors are traditionally the backbone of the country’s economy and it is imperative that the government takes a deliberate strategy to fund the activities of these sectors to enhance economic recovering and boost exports.
Zimbabwe has virtually become an importing country particularly goods from neighbouring South Africa, something that has bled the economy. The policies that have been introduced by Ncube are still to be absorbed by both the business community and the transacting public, and there are no signs that they will be understood any time soon
