eBusiness Weekly
Michael Tome
Confidence remains the missing link in the Zimbabwean economy, with economists this week arguing people still have fresh memories of incomes and savings that were eroded within or slightly over a decade ago.
Zimbabwe has in the past been plagued by scenarios of sharp depreciating currency due to high inflation notably in 2008 and 2019, where savings and incomes were decimated due to the economic woes.
The second quarter of 2023 has apparently been reminiscent of those past years as the country saw itself in almost the same wave of rapid currency devaluation.
Inflation has remained elevated in the Zimbabwean economy, albeit growing efforts by the Government to arrest the sharp depreciation of the local currency.
Zimbabweans, have grown to have little faith in the local currency, stemming from the two aforementioned eras, where the currency took a serious nosedive, leaving individuals and corporate casualties.
Prices of goods and services increased rapidly in a day’s time as the local currency took a dip in 2008.
Lack of confidence in a currency has been cited as the underlying cause of exchange rate instability, unsustainable inflation and capital flight. As it stands, businesses and individuals are facing difficulties in planning and conducting transactions as they struggle to anticipate exchange rate movements.
Lack of confidence in a currency alone can be a possible deterrent to foreign investment as financiers are less likely to invest in such an environment leading to reduced foreign direct investment. According to analysts, every economy needs a stable currency for it to develop but that has not been the situation in Zimbabwe for years.
Stability has almost been a rare find since 2019, yet it is a cornerstone of an economy as it makes provision for growth and poverty alleviation.
While giving economic insights to participants at a convention arranged by the Zimbabwe Economic Society (ZES), Dr Ithiel Mavesere from the University of Zimbabwe Economics Department, said it was high time the responsible authorities come up with measures to restore confidence in the currency through the implementation of sound macroeconomic policies, that ensure the stability of the financial sector, and promoting transparency and good governance.
He decried the incessant printing of money saying it was the source of the untenable inflation numbers obtaining in the economy, adding that continuous announcement of policy measures within a limited space of time was a sign of desperation – fuelling lack of confidence.
“There is one variable in our currency volatility, people have history, this has been happening, people have experienced episodes of hyperinflation, they still remember what happened to their savings in 2008, 2019 and the financial sector is very sensitive to such news. In that regard, you would find that people now have low confidence in our institutions and policymakers.
“We definitely feel that it is too excessive for an economy to have a money supply that exceeds 100 percent and expect inflation to be manageable under such circumstances, in any case, this money supply growth is not matched by production on the ground. So it is just nominal monetary increase without any production and output and at the end you should expect that to be inflationary, and affect the exchange rate.
“We should be honest with ourselves, how can we have the central bank announcing six, seven, eight policy measures in two months? How do you expect economic agents to react, they will not trust whatever you say,” said Mavesere. He implored the central bank to take some misdemeanours found in the banking sector head-on, not only to respond when the economic situation goes south.
“The central bank is being reactionary instead of being proactive, we expect the central bank to be proactive because it is the leading financial institution in the country. It should supervise all these other financial intermediaries but it looks like the central bank is not in control of what is happening in the financial market.
“In that regard, you will find that economic agents will continue to lose confidence in the central bank,” added Mavesere.
Labour and Economic Development Research Institute of Zimbabwe (LEDRIZ) economist, Dr Prosper Chitambara, said the government needed to be consistent in its policies and come up with measures that inculcate confidence in the majority of the countrymen.
He said there was a need to formulate robust monetary reforms, fiscal reforms and institutional reforms to anchor confidence in the local currency and economy.
“Money supply growth has actually been expanding at unsustainable growth rates, up to 100-200 percent, that causes loss of value in the local currency, it causes a massive spike in the demand for USD which perpetuates depreciation of the local currency.
“Confidence in a currency is a function of productivity and is inculcated through a track record of implementing fiscal policies, monetary policies, and institutional policies, including an autonomous central bank,” said Chitambara.
