ONE of the country’s leading brokerage firms says Zimbabwe is yet to fully realise economic gains despite several measures announced by the authorities to stabilise the macro-economic environment.
The country held a general election last month and the outcome of the poll which has been described by regional and international observers as falling short of accepted standards has been the subject of immense debate both at home and abroad.
IH Securities in its banking sector research published this week noted that President Emmerson Mnangagwa’s administration faces economic hurdles ahead.
“The country continues to face currency headwinds evidenced by the depreciation of the ZWL by 85% year-to-date. Of note is the movement of the exchange rates, both the parallel market rate and the interbank rate, in tandem with money supply,” IH says.
“The parallel market rate peaked in June at 8 100 and we believe this was in response to increased money supply in the economy. As a result, we witnessed further tightening of money supply. We also observed significant devaluation of the exchange rate on the RBZ Auction System as the apex bank tried to contain the parallel rate premium. The country’s parallel market rate premium (currently at 26%) is still significantly higher than other observable divergences in Sub-Saharan Africa ranging from 3% to 6%, although it has been on a downward trend. The central bank has made efforts to try to liberalise the foreign exchange market.”
The Dutch Foreign Currency Auction System now determines the exchange rate while most trades now go through banks and other financial service providers.
“With the country still experiencing a trade deficit, foreign currency shortages are forecast to persist at least in the short-term,” the report reads.
“Post the introduction of the auction system, month-on-month inflation had deflated into the single digits resulting in annual inflation slowing to 50.2% in August of 2021. However, compounded effects from the Russia/Ukraine war and uptick in money supply in the first half of 2022 resulted in resurgence of a hyperinflationary environment.”
Official figures show that in 2022, the Zimdollar:US dollar exchange rate increased by 342% on the parallel market while the interbank rate increased by 530%. Year to date, the official exchange rate has surged by 597% while the parallel market rate has increased by 511%.
The parallel market premium peaked at 125% in May 2023 before rapid devaluations of the auction rate and the introduction of the digital gold coins alongside the current hawkish monetary policy stance by the central bank.
Since then, the parallel market premium has been generally on a downward trend. As of the last week of August, it was around 26%.
The economy faced a plethora of challenges in the first half of the year. Power shortages were rampant, especially in thr first quarter of 2023 although the situation improved in the second quarter as Hwange thermal power station’s unit 7 came on stream.