The government will not dump the Zimbabwe dollar even if it loses value to unsustainable levels amid fears that the authorities will be forced to abandon all infrastructure developments that they are currently undertaking, Business Times can reveal.
Zimbabwe is undertaking several infrastructure development projects which include the Beitbridge-Masvingo-Harare road expansion and rehabilitation will be completed by year-end, while road rehabilitation works are underway on the Beitbridge-Bulawayo-Victoria Falls Road and construction of Gwayi-Shangani Dam, Kunzvi Dam, Tuli-Manyange Dam, Vungu Dam, and Semwa Dams.
Local resources are financing the projects, as Zimbabwe cannot access concessionary funding from multilateral institutions like the World Bank due to a debt overhang.
With the lack of access to foreign direct investments and credit lines due to two decades of isolation, Zimbabwe is going it alone (taking a leaf from Italia fara da se) to achieve the upper middle-income economy by 2030.
A government source close to the developments told Business Times that the sustenance of ZWL$ strengthens the “Nyika inovakwa nevene vayo” mantra as it allows all infrastructure development projects to continue.
“We often scoff at various reports of dumping the ZWL$ for multi-currency or US$ to stabilise the exchange rate, inflation, and economy at large but if we do that, how are these major projects going to be completed?
“These projects will only be completed if the ZWL$ is working,” a source said.
The source said the government is well aware of the exchange rate challenges and inflation but will not dump the ZWL$ on account of these projects of a huge magnitude.
“We would have dollarised a long time ago, but we need projects that are tangible to show to our people that this is what your government has done,” a source said.
The official exchange rate has plummeted to ZWL$2577.05 per US$1 from ZWL$671.44 per US$1 on January 3 2023 while on the parallel market, ZWL$ plunged to ZWL$4500 per US$1 from ZWL$1100 per US$1.
The call to maintain the Zimbabwe dollar comes as President Emmerson Mnangagwa said the local unit is here to stay.
In an interview with The Third Eye and Brick By Brick magazines, President Emmerson Mnangagwa said sanctions had succeeded in destroying “our ZWL$ currency when we carried over ZWL$2bn to buy a loaf of bread. He said that was when the economy abandoned “our currency for the multi-currency system to apply the US$, €, £ and ZAR, this stabilised our situation” adding there is no country that can develop without its currency.
“We have reached the stage where we now have our currency but it is under serious attack, we will never abandon it,” Mnangagwa said.
“What we might do is to legislate against forex to ensure we use our currency. People should know that our currency is here to stay, it must sink in our minds, it is here to stay but forex is not here to stay.”
Central bank chief John Mangudya said dollarisation is unsustainable due to limited foreign currency despite 70% of deposits in the banking sector being in forex.
“We are well aware that 70% of the bank deposits are in forex but we can’t dollarise, we cannot be competitive in a dollarised environment, we need to look at the national interests; this economy cannot sustain dollarisation, we have limited foreign currency; we live from hand to mouth (in terms of forex).
“Zimbabweans always go to the parallel market as they have a huge appetite to buy forex,” Mangudya said.
He said Zimbabwe cannot sustain dollarisation due to the rate at which US$ goes out which is faster than the rate at which it comes in and aggregate demand will fall with many companies scaling down and retrenching.
He warned that dollarisation would negatively impact growth.
Recently, the Finance and Economic Development permanent secretary George Guvamatanga claimed the Treasury had not printed a single cent from the central bank since coming into office in 2017.
Guvamatanga said the Treasury had also not used the central bank overdraft window but he, however, did not rule out the potential negative effect of the high velocity of the large payments to public contractors and suppliers to the Government on exchange rate volatility.
In early 2019, RBZ announced plans to bring back the Zimbabwe dollar as legal tender after a decade of using the US$ and seven other international currencies due to raging hyperinflation that had run the local currency aground.
Economist Gift Mugano said the major driver of the exchange rate’s collapse was “excessive printing of money” and a lack of fiscal discipline.
“In the last two years, the government has never spent within its means as it supported infrastructure and agriculture projects with short-term funding which was a recipe for disaster as far inflation and exchange rate were concerned,” he said.
Mugano said money released by the treasury would find its way to the black market, precipitating the devaluation of the already struggling local unit.
“Dollarisation is like death: You collapse and die. That is where the currency has gone. Our government has continued to take in lots of poison into this economy and printing money and being stubborn and putting more into construction and agriculture and failed to take advice.”