THE Zimbabwe dollar has devalued by over 580% since February 2019 to date, United States Agency for International Development food security arm, FEWS NET, has said.
BY TATIRA ZWINOIRA
Due to inadequate foreign currency, commodity or market confidence backing it, the Zimdollar has continued to depreciate rapidly leading to hyperinflation that has led to a plethora of macro-economic challenges.
So dire is the situation caused by the devaluing Zimdollar that according to a leaked draft document last week, titled Macro-economic Policy Measures to Support 5-year De-dollarisation Strategy, which the Reserve Bank of Zimbabwe said was a working document yet to be discussed by both the central bank and government, there are plans to use foreign currency interchangeably with the Zimdollar until 2022.
This effectively shelves government’s previous position to solely use the Zimdollar through Statutory Instrument 142 of 2019.
“The macro-economy continues to be volatile with deepening challenges impacting rural and urban livelihoods and food access, particularly for poor households. Foreign currency at banks and other formal markets remain in critical short supply. The Zimbabwean dollar (ZWL) devaluation continues with the ZWL to United States dollar (USD) official interbank and parallel market rates devaluing by over 580 percent since February 2019,” said FEWS NET in its new Zimbabwe food security outlook report for the period February to September 2020.
“The parallel market exchange rates continue to drive the pricing of goods and services in the formal and informal markets. Amid persistent shortages, the black market is the primary source of the ZWL where the market attracts rates 35% to 50% more than the use of electronic and mobile money transfers.”
FEWS NET said there was a high demand for the Zimdollar or its equivalent bond notes in cash and coins on the black market as most goods and services were mainly offered in cash or at significantly higher prices using electronic and mobile money.
“The multi-pricing system (USD, ZWL, electronic and mobile money transfers) as well as speculative pricing are driving further volatility on the local markets. As ZWL cash shortages continue, some goods are increasingly being sold only in USD on the black market,” FEWS NET said.
The drop in the value of the Zimdollar has caused hyperinflation as businesses are constantly changing their prices to match the parallel forex market rates to maintain the value of their goods or services.
This is reflected in the annual inflation rate of to 676,39% as of the end of last month, from 540,16% in February 2020.
“Annual inflation calculated by independent analysts was estimated at +/-500% both for December and January. Prices of goods and services continue to escalate, impacting mostly poor households in both rural and urban areas. Fuel prices continue to increase on a regular basis, driving up transport costs and prices on the markets,” FEWS NET said.
“At the same time, fuel shortages are still affecting business operations and increasing costs.
The high cost of electricity as well as frequent electricity cuts continue to impact mainly urban households who are resorting to more expensive alternatives such as fuel wood and gas.”
FEWS NET said the significant increase in school fees and related needs in the new year is putting additional pressure on poor households’ incomes, directly and indirectly impacting food access and employment prospects.
ZimStat statistics show a drop of about 48% in the country’s employed persons to 2 897 064, from 2017’s 5 611 809, out of the estimated 14,2 million population.
“Atypically high humanitarian needs are present in Zimbabwe as the country continues to face one of its worst food security emergencies on record. This is a result of the poor macroeconomic conditions and consecutive years of drought,” FEWS NET said.
“Across much of the country, four out of the last five rainfall seasons have been poor with the last three consecutive seasons considered as drought in areas of the country. This has led to the progressive erosion of livelihood options and productive assets especially among poor households.
The very poor macroeconomic conditions are extremely limiting household purchasing power and access to food on the markets.”
FEWS NET expects most typical food and income sources will remain low during the period February to May 2020, while from June through September, some poor households, especially in high-producing areas of the country are expected to consume own-produced foods.
And, with the COVID-19 pandemic, the situation is expected to get worse as the International Monetary Fund projected the economy to contract by 7,4% for Zimbabwe.