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Zimdollar value to plunge as the economy re-opens – Stockbrokers

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THE Zimbabwean dollar is expected to plunge against the United States dollar, and trade at 1:200 by June, as the economy opens up following the rollout of Covid-19 vaccination in the country, a leading stockbroking firm has forecast.

BERNARD MPOFU
The economy experienced recessions in 2019 and 2020 with gross domestic  product estimated to have contracted by 6% and 4.1% respectively, according to the authorities.

The Reserve Bank of Zimbabwe (RBZ) introduced the new Foreign Exchange Auction System last June to determine the Zimbabwean dollar exchange rate.

The system, which is largely managed by the central bank, has been critical in supplying forex to key economic sectors.

In its report titled Zimbabwe 2021 Economic Outlook: An L-Shaped Economic Recovery, Morgan & Co said the easing of the current Covid-19 lockdown will pile pressure on foreign exchange as companies resume business. Zimbabwe this week received its first consignment of Covid-19 vaccines donated by China.

“We contend that economic and political risks in Zimbabwe remain elevated. In addition, the foreign exchange market in Zimbabwe has been chaotic over the past years as it has been characterised by lots of experiments. The concern is that a post-Covid era whereby the economy and businesses open means that the stampede for foreign currency from every corner of the economy remains,” Morgan & Co said in a research note.

“There is also a heavy reliance on imports. As the demand for foreign currency increases, there will be a cost-push inflation phenomenon as food and clothing retailers as well as other economic agents incorporate the cost of procuring forex (exchange rate premiums) in their prices. As a result, prices of basic goods will head northwards.

“In our view, there is no quick-fix solution to the currency issues in Zimbabwe and we estimate the parallel market exchange rate to move to about ZWL150 by the end of Q1 (first quarter) 2021 and then about ZWL200 in H2 (second half) 2021. The official rate will continue to lag the parallel market and maintain a gap of about 20%-40%. This means that inflationary pressures will remain while y-o-y (year-on-year) inflation number be in the triple digits.”

“Fears of value destruction of Zimbabwean dollar balances have re-emerged in the broader economy. This has been driven by a plethora of factors such as weak local economics and negative impact of the Covid-19 pandemic.

As a result, economic agents are willing to pay huge premiums to convert ZWL bank balances to US dollars. This has an effect of putting pressure on parallel market rates that are currently at ZWL$120.”

Over the past four months, the local unit has been trading at between ZW$81 and ZW$82 against the US dollar on the auction market. But experts say, going forward, the system will not be manageable.

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