News / Local
'Zimbabwe's hastened currency shift won't end lending crisis'
03 Nov 2023 at 14:55hrs | Views
Economists suggest that the recent issuance of a Statutory Instrument (SI) extending the use of multiple currencies in Zimbabwe until 2030 may have revealed the extent of President Emmerson Mnangagwa's discretionary powers to change policies at will. Banks, which had ceased providing long-term foreign currency loans due to Mnangagwa's previous indication that the country would return to using the Zimbabwe dollar exclusively by 2025, are likely to adopt a more cautious approach in light of this revelation.
The delay in extending the multi-currency system had significant consequences, leading companies to halt expansion plans, thereby impeding job creation and economic growth. Mnangagwa's decision to extend the multi-currency system for another five years, following industry pressure, came after weeks of frustration for companies and concerns about being paid in Zimbabwe dollars from January 2026 due to the domestic currency's sharp depreciation, especially on the black market.
Economists and experts emphasize the need for addressing fundamental issues, such as inflation, exchange rate volatility, foreign currency shortages, and confidence in government policies, before exclusively adopting the Zimbabwe dollar. They argue that the President's ability to change SIs before 2030, altering deadlines and policies, poses a risk for lenders and businesses. However, they acknowledge the possibility of a partial return to normalcy, with some banks reconsidering their lending strategies.
Some believe that Mnangagwa's decision to issue the SI without addressing the root causes of the Zimbabwe dollar's instability was a mistake. Addressing trade imbalances and stabilizing key economic factors is seen as essential before moving away from multiple currencies.
Industry voices, including the Zimbabwe National Chamber of Commerce (ZNCC), point out the challenges faced by companies due to the uncertainty surrounding the country's currency policies. The ZNCC highlights the impact on the mortgage market, with financial institutions hesitant to enter mortgage arrangements when the currency situation is uncertain.
Trust Chikohora, former president of the ZNCC, views the extension of the multi-currency system as providing clarity and stability for the next seven years, giving businesses a clear path to navigate.
While experts agree that addressing fundamentals is crucial to adopting the Zimbabwe dollar, they also acknowledge that using a strong foreign currency, like the US dollar, can affect industrial exports and service sectors like tourism. However, they emphasize the need to build confidence and suggest that the South African rand could be a viable transition option before adopting the Zimbabwe dollar exclusively.
The delay in extending the multi-currency system had significant consequences, leading companies to halt expansion plans, thereby impeding job creation and economic growth. Mnangagwa's decision to extend the multi-currency system for another five years, following industry pressure, came after weeks of frustration for companies and concerns about being paid in Zimbabwe dollars from January 2026 due to the domestic currency's sharp depreciation, especially on the black market.
Economists and experts emphasize the need for addressing fundamental issues, such as inflation, exchange rate volatility, foreign currency shortages, and confidence in government policies, before exclusively adopting the Zimbabwe dollar. They argue that the President's ability to change SIs before 2030, altering deadlines and policies, poses a risk for lenders and businesses. However, they acknowledge the possibility of a partial return to normalcy, with some banks reconsidering their lending strategies.
Some believe that Mnangagwa's decision to issue the SI without addressing the root causes of the Zimbabwe dollar's instability was a mistake. Addressing trade imbalances and stabilizing key economic factors is seen as essential before moving away from multiple currencies.
Industry voices, including the Zimbabwe National Chamber of Commerce (ZNCC), point out the challenges faced by companies due to the uncertainty surrounding the country's currency policies. The ZNCC highlights the impact on the mortgage market, with financial institutions hesitant to enter mortgage arrangements when the currency situation is uncertain.
Trust Chikohora, former president of the ZNCC, views the extension of the multi-currency system as providing clarity and stability for the next seven years, giving businesses a clear path to navigate.
While experts agree that addressing fundamentals is crucial to adopting the Zimbabwe dollar, they also acknowledge that using a strong foreign currency, like the US dollar, can affect industrial exports and service sectors like tourism. However, they emphasize the need to build confidence and suggest that the South African rand could be a viable transition option before adopting the Zimbabwe dollar exclusively.
Source - the independent
