Zimdollar haunted by trust issues

Zimbabweans across the country continue to lose trust in the local currency due to the rapid loss of value, meaning it cannot serve as the store of value and medium of exchange.

According to the Zimbabwe National Statistics Agency (ZimStat) eighth round of the rapid Poverty, Income, Consumption and Expenditure Surveys (PICES) phone survey data conducted in partnership with the World Bank, people have lost confidence in the ZWL.

World Bank country manager, Marjorie Mpundu, said the data shows that people are no longer preferring the local currency.

"Of the five key food items, maize meal, cooking oil, beef, rice, and brown or white bread, about 77 percent of the purchases were done in USD or South African Rand.

"The use of foreign currency is more common in rural than urban areas. Rapid loss of its value means the currency cannot serve as the store of value and medium of exchange," she said.

The survey report noted that at national level, more than 78 percent of the transactions on food purchases were in US dollars or South African rand, while about 21 percent occurred in local currency.

"The use of foreign currency was higher in rural areas than in urban areas," reads part of the report.

Economists contend that Zimbabwe's economy is at risk of fast full dollarisation as long as authorities continue to maintain the tight monetary stance which has largely squeezed the local currency.

Several companies and service providers are now preferring to transact in USD terms in order to protect their balance sheets.

Even the Government is increasingly using USD for their own payments with civil servants earning bulk of their salaries in USD terms.

Some retail companies whose models relied on credit have since abandoned them, preferring cash sales and USD credit sales.

Imara Capital Zimbabwe in its Zimbabwe Investment notes, said ironically the authorities' clampdown on ZWL payments created such a squeeze that it has had the unintended consequence of driving dollarisation at a faster pace.

"We have spent the past weeks speaking with many executives from both the private and the listed space.

"Two large food manufacturers we met have seen their USD revenues rise from around 35 percent of sales earlier in 2022 to over 70 percent since August 2022.

"Furthermore the formal retailers have found it difficult to pay them so product has been directed to the USD cash economy and hence physical cash intake has risen," it said.

The Reserve Bank of Zimbabwe (RBZ) has vowed to maintain a tight liquidity management framework, supported by the introduction of gold coins that are reported to have mopped excess ZWL liquidity in the market.

However, in a recent Monetary Policy Statement (MPS) RBZ Governor Dr John Mangudya cut the bank policy rate to 150 percent from 200 percent per annum in response to a drop in inflation in a relief for firms that were struggling to borrow in local currency.

Dr Mangudya said the monetary policy remains restrictive to sustain the current stability with interest rates aligned to inflation developments in order to sustain and strengthen economic resilience.

The lending rate on the Medium-term Bank Accommodation Facility for the productive sectors, including individuals and MSMEs was reduced to 75 percent from 100 percent per annum.

Economics Professor, Gift Mgano, recently said businesses have already taken positions to convert their ZWL loans into USD loans and that means the economy has moved into full dollarisation.

He said the increased use of USD will continue to depress demand because when you are dollarised, demand goes down, imports go up because of lack of competitiveness and the economy will have a widening balance of payment.