Zimdollar bloodbath set to continue into coming year

THE depreciation of the Zimbabwe dollar in 2023 is likely to spill into 2024, with experts forecasting an increase in the cost of doing business, production and increased pressure on the exchange rate.

The local currency has been on a freefall this year, shedding record values against the greenback over the past year.

For instance, in June this year the Zimdollar suffered a bloodbath, prompting the United States-based applied economics professor Steve Hanke to warn against hyperinflation after monthly inflation reached 102% by his measure.

This week, economist Prosper Chitambara told The NewsHawks that a loss in value by the Zimbabwean dollar is likely to blight the country's business environment, thereby worsening standards of living.

"As long as we are in a dual currency framework, and the fact that most people have lost confidence, I think that is going to put a lot of pressure, even next year, on the exchange rate. And also, next year, given that there is El Niño, this could result in diminished agricultural production, which will affect pricing, government spending, imports," Dr Chitambara said.

"So all that will have a destabilising effect. And, that will also weaken the local currency. So, next year, we expect the trend in terms of the local currency to continue on account of the expected challenges with respect to El Niño.

"Government will have to import [food] and even electricity generation will be affected. It will mean that businesses will be under pressure to continue with the use of generators, which will again affect the cost of production, cost of doing business and that will also affect inflation which will have a depreciating effect on the local currency."

The Zimbabwe dollar has continued weakening in the final quarter of 2023. According to an economic report produced by the Zimbabwe Coalition on Debt and Development (Zimcodd), in September 2023 the Zimbabwe dollar lost 15.7% of its value against the US dollar to close the month at US$1:ZW$5 466.75.

This was a significant monthly decline relative to August 2023 when the local unit slightly lost 1.9% to close at US$1:ZW$4 608.11.

 "In the alternative markets, the Zimdollar lost at least 15% of its value to close the month at an average of ZW$1: US$7 100 from ZW$1:US$6 000. As a result of the Zimdollar's worsening decline particularly in alternative markets, the parallel market exchange premia are now widening.

 "The rising Zimdollar depreciation pressures experienced since the turn of September 2023 are emanating from the resumption of Zimdollar payments to government contractors and other service providers who in turn dump the local unit in the street chasing value (US dollar)."

 According to the analysis, the Zimdollar depreciation pressures have been driven by human behaviour such as negative perceptions fuelled by disputed August 2023 general elections, as well as excessive unproductive rent-seeking powered by prevailing multiple exchange rates.

 For instance, in addition to different exchange rates for RTGS balances, cash balances (bond notes), and mobile money balances, the Reserve Bank of Zimbabwe (RBZ) recently introduced gold-backed digital tokens (ZiG).

"The ZiG is an additional payment method for settling local transactions (buying and selling of goods & services). These digital tokens (gold e-wallets) have their own exchange rate which is derived from the prevailing international price of gold," reads the analysis.

"Zimdollar depreciation pressure is expected to remain elevated in the coming months as fiscal spending balloons to cushion the economy and citizens from projected climatic shocks, domestic shocks (energy shortages), public debt distress, and weak global geopolitics. "Also, recurring domestic electricity shortages at a time global crude oil prices remain elevated increase energy costs, slow industrial activity, and threaten the stability of prices."