eBusiness Weekly
Nelson Gahadza
Government policy has over the years promoted the use of the US dollar in the economy; hence, usage within the broader economy is expected to increase while the relevance of the Zimbabwe dollar (ZWL) should continue to wane, an asset management company has said.
Imara Asset Management Company, in its 2024 strategy notes, however, said that in recent days, it has continued to see Government policies that limit the flow of USD into the formal economy.
“This set-up has two broad asset allocation implications for us. For starters, this means the informal sector will remain vibrant. By extension, only those businesses that can tap into that sector will be able to harness the hard currency into their bank accounts,” reads the report.
Secondly, Imara said that with a continuously decreasing formal tax base, government revenue is going to be severely impacted with limited inflows into its account.
“By their own admission, as per data available from Treasury, even though the estimated level of dollar transactions in the economy is close to 80 percent, actual USD government revenue collection is estimated at only 48 percent.
“Our debt levels are nearing unsustainable levels, and on the other hand, there is likely no external multilateral support in the near term.
“With limited wiggle room but an increasing amount of expenditures, we are convinced it is only a matter of time before the government resorts to running the printing press again, and this should see the ZWL further weakening followed by an increase in inflation,” reads part of the strategic notes.
Imara said the country has gone for a longer period without a sound monetary policy, which has been a key contributor to the death of the local currency as being witnessed.
It said a very sound monetary policy would entail an accelerated variation of the current strategy and see further growth of fixed-income assets and the inclusion of those with a relatively longer duration.
Imara said trust in the local currency was destroyed from 2014 onwards when the government tried to create its own USD to fund excessive spending through the massive issuance of USD Treasury bills, which it could not honour, or through the creation of electronic US dollars.
“That has huge implications in 2024, as the straight jacket of dollarisation is now that much tighter than it ever was in 2013, to the extent that the government will find it far harder to fund its expenditure through local means such as taxation.
“The damage done to its reputation back in the 2014–2019 era by effectively converting depositors real USD, first into RTGS and then into ZWL, will linger for many years to come.
“Its handling of the ZWL since 2019 simply makes the situation even worse, which explains why today USD cash is king. The economic authorities therefore find themselves in a bind of their own making,” Imara said.
Imara noted that Zimbabwe’s asset markets remain too narrow and relatively illiquid to afford the comfort of trading in and out of different assets to suit the short-term situation prevailing at any particular time.
