President Emmerson Mnangagwa’s new administration will be under intense pressure to come up with strategies to deal with a myriad of risks the economy is facing including foreign currency headwinds amid grave concerns fresh price hikes and exchange rate volatility in the post-election period may stunt the projected 5.3% economic growth.
President Mnangagwa has not yet announced the members of his new administration after being elected to a second term last week.
The initial forecast for Zimbabwe’s economic growth rate for this year was 3.8%, but it has now been revised to 5.3% in light of the country’s robust performance in the mining and agricultural sectors as well as the country’s lessened power shortages.
After units 7 and 8 of the Hwange Power Station were recently put into commercial operation, Zimbabwe’s power situation significantly improved. The units are currently supplying the national grid with 600 megawatts.
But, Mthuli Ncube, the outgoing minister for finance and economic development who is expected to make a comeback in the new Cabinet, has cautioned that the prospects for economic growth could be jeopardised by a potential resurgence of exchange rate and price volatility.
In the first half of this year, price and exchange volatility battered many companies’ balance sheets and budgets, putting many businesses on the brink due to exchange losses.
“In spite of the positive economic outlook, the economy still faces some risks, mainly arising from price and exchange rate volatility, which complicates policy choices between stability and growth. Containing exchange rate volatility and domestic inflation pressures remains an overriding objective of the government as it engenders market confidence, investment and competitiveness of the economy,” Ncube said.
Kurai Matsheza, president of the Confederation of Zimbabwe Industries, told Business Times that the government should balance liquidity to promote economic growth.
“The authorities should balance fiscal and monetary policy stances to enable economic growth as too much liquidity squeeze could affect aggregate demand and excess liquidity could trigger inflation,” Matsheza said.
The local currency experienced a sharp decline from ZWL$671.44 per US$1 on January 3 2023 to ZWL$6926.58 per US$1 in June of this year, sparking a public outcry for its elimination.
In order to control the situation, the government implemented harsh measures.
According to Ncube, foreign exchange stability and convergence eliminate arbitrage opportunities and other economic distortions, lessen uncertainty, and facilitate businesses’ ability to plan and budget for future transactions.
He said the tight fiscal and monetary stance being implemented by the government was to avoid full dollarisation of the economy, which Ncube said was detrimental to domestic industry competitiveness in international and domestic markets.
According to Ncube, the tight fiscal and monetary conditions will be maintained going forward, as the government seeks to stabilise the macro-economic environment and improve market confidence.