Zimbabwe’s transition from a multicurrency regime, one dominated by the US dollars, will be a gradual rather than big bang process that will entail extensive consultations and market-driven interventions to be introduced when both the exchange rate and inflation have stabilised, according
Finance and Economic Development and Investment Promotion Deputy Minister David Mnangagwa.
Mnangagwa revealed this while responding to lawmakers in Parliament during a recent question and answer session that also focused extensively on the Government’s dedollarisation roadmap.
The deputy minister’s remarks follow President Mnangagwa’s extension last month of the duration of the multicurrency regime to 2030, by which Zimbabwe is expected to have achieved upper middle-income status, in terms of Section 2 of the Presidential Powers (Temporary Measures) Act.
Earlier in June last year, the Government promulgated Statutory Instrument (SI) 118A of 2022, which provided for the multi-currency system to run for five years until 2025.
Zimbabwe first adopted the multicurrency regime in February 2009 after hyperinflation, which the International Monetary Fund estimated to have peaked at 500 billion percent in 2008, decimated the domestic currency resulting in its rejection by the market.
While attempts to reintroduce the domestic currency as a monocurrency since 2019 have failed, under a multicurrency regime has been fraught with many challenges, as the domestic unit has suffered several bouts of depreciation and volatility.
Mnangagwa first responded to Bikita South Member of Parliament Energy Mutodi who enquired when the Government would introduce the monocurrency regime and what measures it would put in place to prevent price shocks associated with the introduction of a local currency.
“I think the question when we would assume that is when there is a date. As Government, and as Treasury, we are committed to coming up with a roadmap. The road to dedollarisation will not be an event, but rather a process. You find that there are measures that the country is putting into place.
“This is part of the de-dollarisation programme,” he said.
“After thorough consultations with all stakeholders, that market will come up with a published roadmap that will be available to all, but to answer in a nutshell, there is no definitive date, it is going to be a process. It is not going to be a big bang.
“We are here, but gradually we are getting to mono-currency,” Mnangagwa said.
On measures to curtail price shocks from the introduction of a mono-local currency, the deputy minister said; “You will find that there has been some stability, both in the currency exchange rate and prices.
This is due to the policies that are in place which we endeavour to sustain as Treasury just to ensure that we do not have spikes in your exchange rate which also fuel inflation”.
He, however, cautioned that the economy was not immune from the consequences of predatory behaviour by some market players, especially in periods such as the forthcoming festive season when civil servants would have received their bonuses.
During the festive season, the deputy minister said, certain economic agents become predatory to profiteer from civil servants’ salaries, resulting in behaviour that may cause exchange rate volatility. “That has nothing to do with fundamentals, but some of the behavioural challenges which we have which we will be addressing,” he said.
In his supplementary question, Mutodi asked whether, after it was earlier officially announced that there eventually would be a monocurrency, it was not prudent on the part of the Minister to clarify the period he expected to have the mono-currency introduced.
Mutodi further said it was critical to explain the dedollarisation plan “perhaps beyond 2030 when the vision of the President to stabilise the economy and grow this economy to its potential would have been realised; realising that the shift to a mono-currency has had some dire effects on the economic situation of the country”.
In response, Mnangagwa said the extension of the multi-currency regime to 2030 was actually within “our de-dollarisation plan”, adding that it was not going to be a big bang approach to de-dollarisation of mono-currency.
“That means that you want to have a market-driven demand for the local currency. It means that you have to be responsive to the market rather than reactive to situations.
“So, at every stage, we are consulting with the market, which is not extremely big by the way. So, you will find that all the measures that are in place are to ensure that we have a smooth transition to the Zimbabwean dollar.
“The best scenario is that everybody wakes up actually desirous to use the Zim-dollar without having been compelled by law, so to say. We will allow the market forces to determine,” he said.
Mt Pleasant legislator, Allan Norman Markham, further inquired on the currency issue of whether the multicurrency would remain in use until 2030 saying “Because at the moment, we are seeing a reduction in US dollar loans because they (banks) are worried the US dollar will be used up to 2025? I thank you”.
In response, Mnangagwa said: “I would say that the extension to 2030 is meant to cure the borrowing that I guess was being impeded by the 2025 deadline. What we have is a situation that gives comfort to lenders and pension funds as far as the use of the multi-currency is concerned.
“These conversations need to evolve into when we do go into mono-currency, how are we going to grandfather all those who have exposure as far as loans are concerned, in as far as the pension funds, insurance and also, we have a discussion on free funds.”
“Common belief would be that businesses do not want mono-currency. I think they are the biggest proponents of wanting to have local currency to increase competitiveness, but it has to be done properly and orderly,” he said.
The Government will have a de-dollarisation roadmap, the deputy minister said, which will be shared with everybody. Presently, he pointed out, there are still consultations with all relevant stakeholders to ensure that the market and business are not disrupted.
He said the fact businesses were being allowed to settle part of their tax obligations to the Zimbabwe Revenue Authority was indicative of aspects of the Government’s gradual approach to the dedollarisation process, although a proper blueprint will be shared.