Mnangagwa, central bank deliver damp squibs

President Emmerson Mnangagwa's recent State of the Nation Address (Sona) has come under heavy criticism from leading economists, who say it lacked concrete solutions to arrest the nation's spiraling economic challenges. The country is currently grappling with a free-falling currency, escalating price hikes, and severe power shortages, all of which have compounded hardships for millions of Zimbabweans.

Analysts pointed out that Mnangagwa's speech, delivered last week, failed to present a clear roadmap for resolving the country’s growing economic crises, leaving many questioning the government’s ability to navigate the worsening situation.

Zimbabwe's troubles have been exacerbated by a series of missteps, particularly after the central bank devalued the local currency by 43% on September 27 and increased interest rates in a bid to contain inflation. The immediate aftermath saw the currency battered further, with prices skyrocketing across the board.

"These measures were intended to control inflation and stabilize the currency, but the impact has been severe," said a report by research firm Equity Axis, titled ‘Exchange Rate Riddle - What Next for Government?’. The report warned that borrowing costs for businesses would rise, further squeezing small and medium enterprises and reducing profit margins.

Equity Axis acknowledged the central bank’s interventions as necessary to manage liquidity, but cautioned that the long-term effects could stifle economic recovery. The report warned that unless more robust measures are implemented, the situation could deteriorate further.

Mnangagwa’s address came shortly after the central bank’s moves, and while he acknowledged the economic turmoil, he promised "corrective measures" to curb speculative activity that has destabilized the currency. However, his comments failed to quell concerns among analysts, who say the government's approach remains insufficient.

Chenayimoyo Mutambasere, an economist at the Centre for Economic Justice, pointed out that Zimbabwe’s economy is now largely dollarised, with 80% of transactions conducted in U.S. dollars. She argued that government policies should reflect this reality and ensure stability in the U.S. dollar market, especially as the Zimbabwe Gold (ZiG) currency continues to lose value.

"The devaluation of ZiG has only added volatility to the market," Mutambasere said. "To restore stability, authorities should pursue a credible policy mix that builds confidence, including pegging the currency to a stable anchor, tightening monetary policy, and increasing transparency."

She called for the government to bolster its foreign currency reserves and adopt an aggressive fiscal consolidation strategy to reduce reliance on the parallel market for foreign exchange. In her view, a lack of clear communication from the Reserve Bank of Zimbabwe (RBZ) has contributed to uncertainty, and authorities must now move swiftly to clarify their long-term currency strategy.

The issue of power shortages was another key concern raised by Mnangagwa, who hinted at increasing the role of independent power producers (IPPs) to address the chronic outages. However, economists say more comprehensive solutions are needed. Mutambasere suggested fast-tracking renewable energy projects and refurbishing existing power plants to ensure a sustainable energy supply.

Stevenson Dhlamini, an economics lecturer at the National University of Science and Technology, expressed reservations about full dollarisation, despite its popularity among many economists. He argued that dollarisation could worsen Zimbabwe’s already unsustainable debt burden, currently estimated at US$21 billion.

"Dollarisation might seem like a quick fix, but it would have severe implications for debt sustainability," Dhlamini warned. "In the short term, we need to monitor fiscal spending closely and improve policy transparency to facilitate better economic decision-making."

The deteriorating value of the local currency, combined with power cuts lasting up to 16 hours a day, has disrupted critical value chains across industries. Analysts fear that without swift and decisive action, Zimbabwe could be headed toward another bout of hyperinflation, adding to the economic strain already felt by the country's citizens.

With no clear timeline on when these issues will be addressed, the outlook remains grim, and economists are urging the government to implement more effective reforms before the situation worsens.