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A woman walks past election posters in Harare, Zimbabwe, July 19, 2018. REUTERS/Philimon Bulawayo - RC191C773A60


Election season could ratchet up inflation



THE Confederation of Zimbabwe Industries says next year’s general elections, money supply growth to support the summer cropping season and a suppressed foreign exchange market may reverse inflation stabilisation in the short to medium term.


Official figures show that since the beginning of 2022, annual inflation has been increasing every month unabated. For the first time in 2022, annual inflation slowed down in September, which experts say was a positive development since Zimbabwe has one of the highest inflation rates in the world.

 In September 2022, the annual inflation rate was 280.4%, shedding 4.6 percentage points on the August rate of 285%. The persistent decrease in month-on-month inflation since July 2022 is starting to filter through to annual inflation.

With the tight liquidity conditions in the market, market watchers say it is expected that the decline in annual inflation will be sustained in October 2022 as well.

Goods and services that had the highest inflation rate in August 2022 recorded a decline in September 2022 except electricity which registered an increase.

The CZI says despite the relative stability, Zimbabwe’s annual inflation is such an outlier compared to its regional counterparts, which compromises competitiveness.

“Zimbabwe is now entering its farming season, which comes along with agriculture financing. In recent years agriculture financing has been Zimbabwe’s Achilles heel when it came to macro-economic stabilisation,” reads the latest CZI currency and inflation update.

“The manner in which government will finance the agriculture season will determine the sustainability of the inflation downturn. There is need to ensure that the financing of the agriculture season does not result in a net increase in liquidity beyond levels that holders would need for transactions and other payments, which could see the parallel market getting fuelled up.”

Experts say the introduction of gold coins as a store of value, increased due diligence on payment of government suppliers, hiking interest rates to 200% and slowdown in money supply growth have in recent weeks eased inflationary pressures.

“Zimbabwe is approaching election season as 2023 draws near. Elections are by nature a very expensive undertaking and there is need for the authorities to ensure that the season does not come with money supply increase whose consequences would be dire to stability as has already been experienced. Under a high inflation environment, the ZWL$ will continue to lose value such that any holder would be better off offloading it and holding on to the USD,” the report reads.

“With no official platform for domestic participants to change local currency for foreign currency for store of value purposes, any extra liquidity in the economy will chase foreign currency on the parallel market.”

The organised manufacturing sector lobby group says while the central bank has increased the amount of foreign exchange which can be accessed from the formal banking system, more steps are needed to liberalise the market.

The Reserve Bank of Zimbabwe (RBZ) increased the maximum amount that entities can purchase from the willing-buyer willing-seller (WBWS) system from US$20 000 to US$100 000 per week per entity.

 This was done in a bid to liberalise the foreign exchange market.

“However, the rate on the WBWS platform must be market determined if RBZ is going to maintain sustainable convergence,” CZI says.

“A controlled rate will ultimately lead to a distorted exchange rate market and the emergence of a huge parallel market premium, which is an opportunity cost for using official foreign currency channels, hence increased traffic to the parallel market. There is need for RBZ to take advantage of the current convergence pathway to avoid any more controls of the rate which widens the parallel market premium and renders the official exchange rate unattractive for holders of foreign currency.”

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