ZIMBABWE needs the political will to embrace badly needed governance reforms required to strengthen the value of the local currency despite its 40% gain in the past month, economic analysts say.
Ahead of the forthcoming 23 August general elections, the authorities are upbeat that the appreciation of the Zimbabwe dollar, widely seen by some critics as one the worst currencies in the world, may signal an economic rebound.
The Zimdollar recouped nearly half of its value against the US dollar after a 90% plunge this year, but the news has hardly shaken the market as most retailers continue to shun the local unit for hard currency.
Prosper Chitambara, a senior researcher at the Labour and Economic Development Research Institute of Zimbabwe, a research think-tank of the Zimbabwe Congress of Trade Unions (ZCTU), said more reforms are required to sustain macro-economic stability after the general elections.
“This (the appreciation of the Zimbabwe dollar) is really reflecting the tight liquidity in the economy where government obviously has been trying to control liquidity injections, whether it’s large-scale payments. There is a general shortage of liquidity,” Chitambara said.
“The key fundamentals that are critical to ensuring exchange rate stability and sustainability include the extent to which the foreign exchange regime is liberalised, issues of confidence in terms of macro-economic management and, of-course, issues of productivity.
“Those are the factors that are critical in terms of ensuring this stability and sustainability of the exchange regime and of the macro-economy. Whether or not this appreciation is going to be sustained depends on whether or not government is going to increase liquidity going forward: the large-scale payments, for example. We also need an equally tight or contractionary fiscal policy and other institutional reforms to address issues of leakages, for example parastatals need to reform because government continues to subsidise loss-making paratastals and that has a destabilising effect on the macro-economy.”
Zimbabwe’s challenge, Chitambara added, has always been sustaining the macro-economic gains in a difficult year going into the elections, which are associated with a rise in public spending.
“But once we are able to get the elections out of the way, probably after elections the party which wins the elections should be able to address fiscal reforms that are necessary to ensure stability and sustainability,” he said.
Tinashe Murapata, Leon Africa chief executive, says the foreign exchange market is not as liberalised as it seems.
“Government of Zimbabwe was clear about its rabbit hole trap. Use the auction to control prices. A backdoor price control,” he argues.
“Has it worked? Imagine ZWL at $4.77k has gained close to 50% of value in one month. The highest in the world. Yet the market has chosen to ignore the auction and continues the march to full dollarisation.
“Every survey that has been done is clear that the economy is the biggest worry in Zimbabwe and that it’s veered off the rails. We need to fix the economy.
“Unfortunately the answers are not so obvious and the political will is lacking. So the people will do the obvious thing and jump the border. I don’t blame them. Zimbabwe is now anchored on diaspora remittances. It’s clear that even the corrupt are not making as much money as they were doing five years ago. Even those tied to the system are affected by hyperinflation. Why is political will lacking?”