The country has seen disposable incomes being eroded by inflation to the worry of many companies that now fear less demand for their goods will prevail for some time if the trend continues. Economic analysts have called for Treasury to avail measures to deal with the inflation decisively.
Analysts acknowledge that most of the inflation is imported but they said the country needs to continue growing despite such external shocks.
This week, Zimbabwe Energy Regulatory Authority (ZERA) increased prices of fuels and bakers also hiked bread prices giving us evidence of imported inflation due to the ongoing Russia – Ukraine war.
The two countries are the biggest exporters of wheat and one of the biggest producers of oil in the world.
Despite the issues, analysts are optimistic that authorities can leverage on monetary policy autonomy and closely monitor the excessive reserve money growth which has been propelling adverse inflation expectations by economic agents.
According to economists, the pass through effects of exchange rate instability are perpetuating the undesirable increase in inflation, hence the urgent need to strictly pursue the announced tight monetary policy stance.
“The current increase in inflation level should be dealt with to preserve economic gains that the economy has registered in the recent past including being resilient to shocks like Covid-19,” said Development Economist, Dr Prosper Chitambara.
“The obtaining situation with respect to inflation movement is worrisome and needs corrective measures for the country to be able to meet its economic objectives, hence maintaining a tight monetary policy becomes imperative to sustain the country’s economic journey especially the second half of this year,” added another Economist, Titus Mukove.
Zimbabwe’s fiscal and monetary authorities are implementing a number of policy initiatives to strengthen the macroeconomic environment for enhanced stability.
Some have argued that the currency can only work if the Reserve Bank of Zimbabwe (RBZ) is privatised and has less connections to government. Such calls increase by the day as inflation continues to rise as a result of what people say is money printing by the central bank.
But on the contrary, most central banks in Africa are wholly owned by the state, however, the level of inflation and economic stability in those countries is directly correlated to central bank transparency and monetary policy independence.
Economist, Allen Dube, said; “As a result, ownership of the central bank is the same, what distinguishes various economies is the level of transparency and institutional mechanisms that bring good governance, transparency and public confidence.”
Zimbabwe’s central bank has over the years been accused of being involved in funding public sector programmes that are not part of its mandate, thereby, shredding the whole economy.
Inflation is largely a function of money supply in the local economy, not the supposed fear of free market policies or other exogenous factors. Provided money supply growth is aligned to economic growth and kept low in an inflation targeting framework, foreign exchange prices will stabilise since the source of money largely finite.
“Foreign exchange stability and consistency are more important than the exchange values. The challenge with the central bank is that it cannot let foreign exchange prices be market determined because it needs to print money while getting foreign currency at sub-economic prices from exporters,” Dube added.
Reserve Bank of Zimbabwe (RBZ) Governor, Dr John Mangudya, says the country cannot afford to fully dollarise as the move will be detrimental to the socio-economic growth of the country.
While some quarters have been clamouring for full dollarisation of the economy, the RBZ has clarified that 60 percent of the inflationary pressures are imported, hence dollarisation is a recipe for economic stagnation.
“The government has allowed for the use of foreign exchange alongside the local currency.
‘‘The greatest challenge with full dollarisation is that we cannot have enough capacity to monetise all the bank balances for foreign exchange.,” the Governor said.
According to monetary economist, Professor Laura Chikoko, the greatest danger the economy would face is to be forced to mix virtual currency and foreign exchange. As a result banks would need to separate the two currencies and trading would continue between the foreign exchange balances and the virtual forex balances.
“We need to love this country and not destroy the momentum and tame. We have been there before in 2018. We will have parallel market of virtual money,” said Prof Chikoko.
She concurred with Dr Mangudya that behavioural issues have also contributed to macro-economic instability.
Dr Mangudya said; “What we have are arbitrage businesses who are behaving in such manner where they get the Zimbabwe dollar and get the USD, but when the rate goes up it’s the consumer who is bearing the brunt.
“We have over US$2 billion to back our local currency, that means we can be stable. However, we see inflation continuing, which points to behavioural issues. We sympathise with the people for they have memories of 2009, but we cannot sacrifice growth for temporary stability.”
According to Buy Zimbabwe, the country’s productivity and industrial value chains have immensely benefited from the use of the local currency, hence the need to perpetuate the position through supporting the Zimbabwe dollar for enhanced economic recovery.
Alois Burutsa, Buy Zimbabwe general manager said; “During the dollarised era, Zimbabwe suffered heavily from its inability to devalue currency as was the case with its regional trading peers South Africa and Zambia, which proved fatal as the country exported jobs and revenue through massive importation of relatively cheap goods and services from around the world.”
As the economy continues to recover from two decades of stagnation, the freedom and liberty to influence its economic destiny is second to none hence proponents of local production remain confident the continued use of the Zimbabwe dollar guarantees economic success.