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Prices skyrocket as Zim dollar plunges

PHILLIMON MHLANGA

The government is in a desperate race to extricate the economyshaken by the painful loss of value of the Zimbabwe dollar, skyrocketing prices of basic goods and services, hyperinflation, energy crisis and foreign currency shortages among many challenges-from its woes.

This week, a single US dollar was trading at ZWL$42 on the parallel market or more than twice what people did back in January.

The greenback is the currency of choice as it stores value with minor exceptions in towns and or settlements close to the border with South Africa using the rand and those closer to Botswana using the pula.

And it’s likely to continue heading northwards. The exchange rate value of the Zimbabwe dollar for US dollars simply tracks inflation trends, which is estimated to be more than 500% per annum.

This is known as purchasing power parity (PPP) exchange rate and means that a Zimbabwe dollar buys one now about as much by way of goods and services in the United States as it might in Zimbabwe.

At the interbank market, the value of a single US dollar was, however, equivalent to ZWL$18.

But, the greenback is not easily accessible, forcing individuals and companies sourcing the US dollar from the black market, where it’s readily available although premiums are punitive.

The signs suggest economic woes are far from over as the exchange rate continue to sway the pricing of goods and services in Zimbabwe.

Volatility in the foreign exchange market continued to weigh down the capacity of companies to meet contractual obligations, undermining confidence.

For instance, bread has shot up by 44% this week to ZWL$27 a loaf of bread from ZWL$18 a loaf last week.

The cost of a 2kg sugar has gone up to ZWL$45 on average from ZWL$39 last week. A kg of beef has gone up to ZWL$125 from ZWL$92 per kg.

A bar of soap has shot up to ZWL$37 from ZWL$32 while a 2kg rice is now costing ZWL$75 on average from ZWL$63 Last week.

A litre of sterilized milk has shot up to ZWL$32.99 from about ZWL$26.

The cost of a bottle of Castle lager beer has shot up to ZWL$50 a quart from ZWL$18 in January this year.

An ordinary hair cut has jumped to about ZWL$60 from ZWL$10 in January 2020.

Doctors consultation fees requires one to part with at least ZWL$900 on average or US$20 using a black market exchange rate of ZWL$45 to buy a United States dollar.

In January, consultation fees to see a doctor was about ZWL$200. Gym and sports club membership have shot up to at least ZWL$900 and ZWL$1 500 from an average of ZWL$500 and ZWL$600 respectively.

It’s even worse for transport costs.

For example, a trip to Chitungwiza from town now costs about ZWL$15 at peak periods, up from ZWL$5 in January this year.

Bus fare for a trip to Kuwadzana Extension is now at ZWL$10 from ZWL$6 at peak periods.

To go to Mabvuku, one has to fork out ZWL$10 at peak hours, up from ZWL$6 in January. And very few can now afford even a date out.

In fact, the basket of goods that make up the consumer price index (headline CPI) to compile the index for a family of six has gone up to about ZWL$5 000 or US$22 using a parallel market rate of ZWL$45: US$1 obtaining this week to live in Zimbabwe compared to ZWL$2000 three months ago.

The crisis has caused a lasting damage.

Consequently, the still fragile economy has ceded its reputation as one of the cheapest places in the world to live due to economic turmoil, according to the latest Worldwide cost of living survey. Zimbabwe’s economic crisis has been caused by policy inconsistencies, which have partly caused the loss of value of the Zimbabwe dollar.

The massive price hikes of basic consumer goods, higher utility costs and fuel hikes imposed on consumers in recent weeks have pushed Zimbabwe several notches in a number of global living cost indices.

Higher mobile and data costs are also making it more expensive to live in Zimbabwe than in many other emerging markets.

This was underscored this week when prices of basic goods and services shot up again.

These, analysts said have dramatic consequences.

“This is a very sick patient (Zimbabwe economy),” economist Gift Mugano said.

He added: “Everyone is fighting to preserve value of money.

But, the fiscal and monetary framework are in a quandary. This is the tragedy of failing to read the economy.”

“The challenge we have is policy inconsistency.

What are we saying about the US dollar?

Are we using the Zimbabwe dollar or the US dollar?

If we are using the local currency, why are we taxing people in the US dollar?

Why are we exempting others?” Mugano asked.

Mugano suggested government to adopt dollarisation or at least go for a dual currency where the local currency and the greenback are used as the main currencies.

Another economist, Phenious Kadenge said the reality on the ground suggested that authorities were swimming against the tide.

“It is government which has de-dollarised. The market has re-dollarised.

People prefer to use other currencies. The elephant in the room is the Finance Minister (Mthuli Ncube).

He continues with fiscal indiscipline of (deficits). He then ask the central bank to monetize it,” Kadenge said.

In sharp contrast to Ncube’s assertions that the country registered a budget surplus last year, Zimbabwe recorded over ZWL$500m budget deficit in 2019, according official Treasury data released last week.

“I don’t agree with Ncube when he say he has posted a budget surplus, what he has is cash-flow surplus not budget surplus.

He just decides what to pay and what not to pay and he remains with cash-flow surplus because government operates on a cash account basis,” Mugano said.

The Institute of Chartered Accountants of Zimbabwe chief executive officer, Gloria Zvaravanhu weighed in saying: “We are very far away from the mark, from what we intend to achieve. Given the facts on the ground, my opinion is that the going concern issue is not on track.”

On this trajectory, several business executives warned it’s unsustainable.

“As business, we are clearly seeing deterioration of output and capacity utilisation. There is dollarisation and the exchange rate has gone haywire, killing business which wants to import critical raw materials,” Dairibord Zimbabwe marketing director Tracey Mutaviri said.

RBZ governor, John Mangudya defended de-dollarisation strongly.

He blamed behavioural economics. “Yes the Zimbabwe dollar is constrained.

But, we are coming up with a de-dollarisation framework in the next five years.

The problem in Zimbabwe is no longer monetary issue,” Mangudya said. He added: “It’s the behaviour of our people who expect the inflation to go up and price their goods basing on replacement value.

What we should do is to produce. If we don’t produce, we will not attract investors.”

He said the biggest factors contributing to the crisis include currency fluctuations.

Local prices are usually converted into US dollars to cover for replacement costs and preservation of value.

The other is hyperinflation, which is ravaging the economy. Economists believe markets, left to their own devices will efficiently and fairly allocate resources.

But, government sees it as a zero-sum game and will not leave the market to get on with it.

Ncube last week disclosed he and the newly established task force will closely monitor the markets. The other problem is that the administration has failed to kick-start the economy and clean up perennial loss-making State-owned enterprises, which have become symbolic of all government’s failures.

Many believe that Zimbabwe’s fiscal woes have been caused in part by the policy uncertainty and government profligacy, which should be clearly dealt with.

This has been compounded by the problems in parastatals, where they were supposed to support growth.

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