‘Solve currency madness to arrest price hikes’

Spread This News

*This article is taken from The Source.
ZIMBABWE’S price increase puzzle will remain unresolved until government restores normalcy on the currency market that has multiple exchange rates and addresses the dollar note shortage, experts say.
The prices of basic commodities have been rising in the southern African country over the past six months as shortages of hard currency deepened.
Zimbabwe replaced its worthless dollar with mainly the U.S. dollar in 2009 but the economy has struggled over the last 24 months because of a massive domestic shortage of greenbacks.
In response to the crisis, last year Zimbabwe launched a surrogate currency, paper ‘bond notes,’ or ‘bollars’ which designed to ease acute shortages of hard currency backed by a $200 million loan from the African Export Import Bank.
The government’s voracious appetite for cash under former president Robert Mugabe – with no fillip in either aid, credit or Foreign Direct Investment — also saw the central bank creating dollar surrogates in the electronic banking system on a far grander scale by extended use of Treasury Bills and the real time gross settlement (RTGS) system.
This money lacks the backing of sufficient currency reserves or gold – the prerequisite of any stable unit, with economists nicknaming the electronic dollars, “zollars.”
With little room to manoeuvre, the new administration of Emmerson Mnangagwa has pinned its hopes on achieving legitimacy at next year’s elections, which along with sharp reforms, will attract foreign credit and improved FDI inflows to solving the currency puzzle.
Meanwhile Zimbabwe’s use of USD, bollars (bond notes), zollars (RTGS), mobile money transfers has resulted in exchange rate disparities in the parallel market, the remaining source of hard currency. The greenback attracts a premium of 75 percent on the market.
Prices of food products as well as appliances rose by over 300 percent since September, with meats and bakery products causing a public outcry.
When he presented his state of the nation address last Wednesday, President Mnangagwa said price increases “raise the appeal of cheaper imports, which has the effect of undermining current efforts to develop the local industry”.
Confederation of Zimbabwe Industries president Sifelani Jabangwe says that meats price increase was driven by avian influenza.Advertisement

Zimbabwe poultry industry was negatively affected by an avian influenza outbreak in the middle of the year causing low production of meat and eggs in the country.
“The other prices that were incurred were in the poultry and eggs due to the avian flu,” Jabangwe said. However, due to demand, red meat has attracted higher prices.
The country also relies heavily on imports due to undercapitalised local manufacturers which import raw materials.
“Too many factors have caused the price increases but l will focus on the main one which is the issue of foreign currency shortages; where manufacturers and suppliers buy foreign currency from the black market. It’s not a sustainable model; the foreign currency must be acquired through formal channels,” Confederation of Zimbabwe Retailers president Denford Mutashu.
Importing require local firms to be well oiled with foreign currency and Reserve Bank of Zimbabwe allocated $600 million in October under nostro stabilisation to cushion procurement of critical raw materials by manufacturers.
Local manufactures cannot meet the country’s demand, though government have introduced some measures like statutory instrument SI 122 of 2017 to restrict importation of finished products.
However local retailers have foreign products with some having three tier prices.
The Zimbabwean bond notes and mobile dollar are valued differently in the black market and products also have different prices with mobile dollar being unfavourable. Retailers favour cash which enables them to import their stock.
The economic experts say that the availability of forex will lower the commodity prices.
“We do not see the prices increasing but we see them stabilising for now if the $1,5 billion (African Export- Import Bank loan) comes in. The currency will have the correct rate being allocated and also by March when the auction floors open will have more flows coming,” said Jabangwe.
The southern African nation earn forex from tobacco and minerals exports. Tobacco exports stood at $898,9 million as at December 13 and the next auction floors are expected to be opened between February and March next year.
“We also need to agree that we do not arrest the forex dealers but what we do is addressing the fundamentals by making sure we try to stabilise our nostro accounts. We must commission that land audit president Emmerson Mnangagwa have spoken about in his inauguration.
“It has to be facilitated otherwise the country will continue facing inflationary challenges because output from farming is especially very low,” said Zimbabwe National Chamber of Commerce chief executive Christopher Mugaga.
In his inauguration speech, Mnangagwa said that farmers whose land was taken lawfully would be compensated.
Analysts also say that commodity prices are expected to drop after the festive season.
“In any case we expect prices to tumble especially after the 25th of December we expect prices to come down and we also expect that there is going to be stabilisation after the coming down of those prices because demand obviously will go down after the Christmas activity,” Confederation of Zimbabwe Retailers president Denford Mutashu.
Mutashu also said that the tumbling rate in the parallel market will reduce the forex demand with manufacturers closing for the holiday.
However, analysts say that the continuous price increases might increase fuel prices.
“My greatest fear at which both shortages and prices increases are happening, in the next two months will face a dilemma of either increasing the fuel prices or they will be shortages of fuel in this market,” said Mugaga.
So far fuel prices have remained stable.
According to the Consumer Council of Zimbabwe, low-income urban earner monthly basket for a family of six increased from the end-October figure of $593,55 to $598,16 by end of November, which shows a 0,72 percent.