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Zim sinks deeper into crisis

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The economy has lurched into a crisis as the government is struggling to stabilise the exchange rate and inflation amid fears of a slow down in capacity utilisation and job losses.

The official exchange rate spiked to ZWL$4.868.51 for the interbank and ZWL$3600 on the auction per US$1 from ZWL$2500 last week while the parallel market rate was ZWL$4500 per US$1 and this week it rose to ZWL$6000 per US$1.

Industry experts and economists say a new wave of price increases for basic commodities is expected to hit consumers every week as manufacturers continue to track foreign currency developments to match costs.

Confederation of Zimbabwe Industries president Kurai Matsheza told Business Times that there is an urgent need to resolve the deepening crisis to attain the targeted economic growth.

“With the exchange rate fluctuating every week on all platforms, we fear that this will trigger waves of price increases every week against a stagnant salary, which means a reduced aggregate demand.

“This will result in reduced capacity utilisation and when this happens this means companies will reduce production capacity and companies will do staff rationalisation to survive,” Matsheza said.

“Also various companies are failing to pay workers in line with inflationary trends hence massive job cuts are imminent if the situation persists.

“In a worst- case scenario, it is not surprising to see some companies closing.”

The economy is at crossroads. Matsheza said there is a need for quick, collaborative, and consistent efforts to achieve the 3.8% GDP growth. Without that, the target will not be reached, he said.

The Zimbabwe National Chamber of Commerce (ZNCC) said the full implementation of the corrective measures would entail that both the government and the private sector representatives would convene once again to discuss the issues affecting the economy.

“Continuous reliance on the informal market for foreign currency by almost 70% of the industry remains a threat to sustainable growth and viability. A reliable exchange rate determination mechanism is an urgent priority before the winter period,” it said in a position paper.

“The exchange rate pass-through effect is highly pronounced with a misaligned exchange rate which is also promoting full re-dollarisation of the economy.”

ZNCC said holding local currency for a prolonged period is resulting in significant exchange losses of about 10% every week.

It said removing import controls at a time when Zimbabwe is starting to generate most of its needed raw materials for value addition was counter-productive and would reverse the gains hitherto accrued in agriculture.

The government recently suspended duty on basic commodities.

“Given how the playing field is still not even for value chains in Zimbabwe compared to value chains from countries where other finished products are sourced, a blanket removal of import controls is not the sustainable way to solve the market distortions.

“It should also be noted that, in this post-Covid era, most African economies have been taking an inward-looking approach, to strengthen their economic bases and protect their bases, and Zimbabwe should be also pursuing the same growth philosophy,” ZNCC said.

An economist told Business Times the instability of the currency was causing most of the ills the country was facing.

“If they can stop printing money and put extra liquidity into the economy, we will continue chasing our tails and not catch it.

“Even if we put in place a 1000-page measures thesis, economic stability is not going to be achieved as long as we continue to control the official exchange rate and pay contractors lump sums of money.

“We are not being honest to ourselves as we continue to fund long-term projects with short-term financing. This will have a hard bearing on the economy and the authorities will not win this war or achieve desired economic growth, “he said.

There are also fears that this trend could continue unabated as electricity costs and rates track the exchange rate.

Apart from the inflationary pressures, the country is also battling rolling power outages, foreign currency challenges, dwindling aggregate demand, and liquidity challenges.

The Treasury expects the economy to grow by 3.8%. Experts say the feat is a tall order in light of the obtaining economic environment.

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