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Zimdollar shortage hits market

by Staff reporter
30 Jun 2023 at 16:08hrs | Views
A serious  shortage of Zimbabwe dollar has hit the market on fiscal and monetary policy measures amid fears the crunch will affect aggregate demand.

The liquidity squeeze follows recent measures by the Reserve Bank of Zimbabwe (RBZ) and the Treasury to suck out liquidity in the market to stabilise the exchange rate which was blamed for runaway prices of basic goods and services.

The Confederation of Zimbabwe Industries president Kurai Matsheza said the deteriorating liquidity conditions were severely afflicting industry and commerce.

"There is a liquidity challenge in the economy  and what the liquidity challenge does is it depresses aggregate demand as there is no traffic in the shops and at the industries,"  Matsheza said.

"We are happy that things have stabilised  but with this squeeze we are failing to make payments for other services because there is no ZWL$ in the market and this has reduced our production capacity."

He said: "What it means is less cash in the markets, less product off-take so it means production will go down because companies can't produce stock as they have no funds. We, however, hope that this would be temporary and not a long-term solution so that business goes back to normal."

Among the measures introduced by the government include the central bank's sale of foreign currency to banks at market determined rates for on selling to bank customers.

The central bank has introduced gold coins and gold-backed tokens which have mopped over ZWL$60bn.

The authorities also suspended payouts to contractors, to control money supply and stabilise the spiralling inflation that has been ranked among the highest in the world.

The Treasury has also directed taxpayers to settle half of the 2nd quarterly payment date in local currency to promote the use of local currency, adding that no payment would be accepted in foreign currency. Taxpayers without adequate local currency are supposed to approach the central bank.

Major retailers said they reported low sales over the past few weeks as consumers, who previously preferred to spend all their local currency in shops, witnessed a dry spell.

The Confederation of Zimbabwe Retailers president Denford Mutashu said sales have gone up in US$ in shops following  the shortage of ZWL$.

"In the past two weeks, we have witnessed an increase in US$ sales but the ZWL$ sales have significantly decreased resulting in the low aggregate demand," Mutashu said.

Economist Gift Mugano said a continued shortage of the local currency could paralyse the economy, given that the currency is Zimbabwe's legal tender.

"The government closed the tap on liquidity, which further confirms the long-held belief that government is the biggest driver of inflation," Mugano said.

He said there is a huge demand for ZWL$ now that the government has stopped pumping money into the market.

Experts say the suspension of payment to government contractors would affect service providers that play a key role in the economy. They said the withholding of funds is a disaster for service delivery.

Companies whose payments have been delayed will refuse to do business with the government and this will result in a total collapse of public services and the projects that the government is working on, they said.

The Zimbabwe dollar remained under pressure this week as annual inflation continued on an upward trend, accelerating to 175.8% in the month of June from 86.5% in May.

To rein in the runaway inflation, the RBZ expanded its monetary measures, tightening money supply and curtailing speculative activities.

The apex bank also increased the market interest rates to 150% from 140%.

Analysts said the move reduced liquidity in the market.

Since January, the local currency has lost 110% of its value on the auction market and 369% on the parallel market.

The massive depreciation of the local currency is being transmitted to prices which causes inflation and macroeconomic instability.

The squeeze has seen banks cutting back on lending at a time companies are in dire need of funding.

Source - business times