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Zimdollar crashes, fuel prices shoot up

by Staff reporter
07 Mar 2020 at 18:08hrs | Views
THE prices of basic goods and services are set to skyrocket anew, after the local currency plunged against the United States dollar on the black market yesterday, the Daily News reports.

This comes as the International Monetary Fund (IMF) has warned that the country will this year face more economic pain, and also experience a gigantic humanitarian crisis.

Disastrously for long-suffering citizens, the Zimbabwe dollar plunged on the parallel market yesterday, days after the government had also hiked the prices of fuel — amid worsening national shortages of both petrol and diesel.

The wobbly local unit tumbled to as low as 40 against the US dollar, amid unconfirmed claims that a State-owned enterprise was in the market to raise significant sums for its imports.

Experts who spoke to the Daily News last night said standards of living were likely to plummet further as the Zim dollar instability would trigger fresh waves of price increases all round.

Economist John Robertson was among those who said that the latest fall in the value of the local unit would result in the prices of basic goods and services skyrocketing beyond the reach of many.

"People want to move money out of the country and they are prepared to sell the Zimbabwe dollar at any price to get foreign currency.

"This is causing market distortions because the confidence is very low. They are prepared to get money out of the country at any cost.

"It's a confidence issue … and that is where the problem is coming from. This will result in an increase in inflation," Robertson said.

Another economist, Brains Muchemwa, also warned hard-pressed Zimbabweans to brace for further price hikes.

"The local pricing of most goods and services is imports-dependent … and the continued sharp depreciation of the exchange rate will be borne by already vulnerable consumers.

"It will only take honest commitment by the government to cease the injection of huge amounts of unproductive money into the economy to stabilise the exchange rate, short of which the exchange rate will never be stable," he said.

On their part, retailers also said the continued loss of value by the Zimbabwe dollar would bring grief to ordinary people.

"The net effect of the currency depreciation is price increases in an environment where incomes and purchasing power are shrinking.

"The exchange rate costs will be borne by ordinary consumers unfortunately," the president of the Confederation of Zimbabwe Retailers (CZR), Denford Mutashu, said.

The Zimbabwe Congress of Trade Unions (ZCTU) said the country was now nearing the horrors of 2008 when hyper-inflation wiped out salaries, pensions and workers' savings.

"This is called State failure. The government has allowed individuals to loot and benefit at the expense of the common good.

"We are headed one way, that is 2008, unless citizens stop this madness. Workers' wages are being further eroded and the majority will now be earning around US$20 a month.

"Many families are already starving, and failing to pay rentals and other necessary expenses … we are also going to see many company closures and job losses," ZCTU president, Peter Mutasa, said.

The startling fall in the value of the Zim dollar comes after the government ill-advisedly banned the general local use of the stability-inducing US dollar and other currencies in the country, to pave the way for the wobbly local unit — without adequate preparations to shore it up.

Last month, the government said the de-dollarisation process was aimed at stabilising the shaky currency, which many businesses and ordinary people have in recent months ditched — preferring to trade in the American dollar.

Last week, companies also warned that the continued depreciation of the local currency would force them to charge their goods and services in US dollars.

The Confederation of Zimbabwe Industries (CZI) said then that as more service providers charged for their goods in US dollars, its members were being pressured to start doing the same for their products.

"It is clear that key enablers for industry are now in United States dollars, and this includes electricity, fuel, transport and raw materials.

"The cost structures for industry are clearly tilting towards a huge United States dollar component at this rate.

"Thus, industry is being cornered into dollarisation to sustain operations at the barest minimum," CZI chief executive officer, Sekai Kuvarika, told the Daily News.

"What we are not clear about is whether we should make special applications to be allowed to trade in foreign currency … through the legal sale of our goods.

"Profitability is now a tall order, as foreign currency is not available at the interbank, which means it has to be acquired elsewhere where it costs more.

"Pricing these costs into our products for a population with depressed aggregate demand is where the wheels just stop moving," she added.

Kuvarika also urged the government to show commitment to its policies, which she said would have a direct impact on all sectors of the economy.

"The move towards re-dollarisation of fuel will also re-dollarise transport … it will dollarise electricity further. Remember, we purchase fuel to power generators since the power grid is short of supply.

"We welcome the step towards the liberalisation of the fuel sector, but it should be in the direction of de-dollarisation, not against that tide (as per the government's strategy)," she said further.

Zimbabwe is in the grip of a huge economic crisis — the worst in a decade — which has seen the country continue to experience skyrocketing inflation, as well as debilitating shortages of water, power, fuel, critical medicines and foreign currency, among a myriad other challenges.

Last week, the IMF said bluntly that worse days lay ahead for the country, largely because of the government's hesitant implementation of much-needed reforms.

"Executive Directors (of the IMF) noted with concern that Zimbabwe is facing an economic and humanitarian crisis, exacerbated by policy missteps and climate related shocks.

"These would require difficult policy choices from the authorities and support from the international community.

"Directors urged the authorities to make a concerted effort to ensure economic and social stability through the adoption of co-ordinated fiscal, monetary and foreign exchange policies, alongside with efforts to address food insecurity and serious governance challenges," the IMF said without mincing its words.

"They emphasised the importance of re-engagement with the international community to support efforts to achieve economic sustainability and address the humanitarian crisis.

"Notwithstanding (Zimbabwe's) efforts in 2019 to tighten the fiscal stance and contain quasi fiscal operations by the central bank, Directors noted that pervasive deficits remain and could be exacerbated by the need to respond to the humanitarian crisis.

"Directors called for non-essential spending cuts, including decisive reforms to agricultural support programmes, to allow for social spending needs," the IMF added.

"They underscored the importance of public financial management and enhanced domestic revenue mobilisation efforts.

"Directors stressed that eliminating deficit monetisation would not only be crucial for fiscal sustainability, but it would also serve as a precondition for the stabilisation of hyperinflation and the preservation of the external value of the currency (Zim dollar).

"Directors noted that Zimbabwe remains in debt distress, with large external arrears to official creditors, and encouraged the authorities to give impetus to re-engagement efforts and debt management and transparency.

"In particular, they cautioned against continued recourse to collateralised external borrowing on commercial terms, as this may potentially complicate any future arrears clearance operation," the IMF said further.

Source - dailynews