ZIMBABWE risks lurching into a fresh meltdown amid rising inflation, shortages of some basic commodities in supermarkets and fuel. This comes as bond notes have lost nearly 50% of their value on the informal market as the economy continues to face treacherous headwinds.
An observation by the Zimbabwe Independent showed that some supermarkets in the capital were struggling to restock, while others are increasing prices on new stock, citing challenges in accessing foreign currency from the Reserve Bank of Zimbabwe (RBZ).
Faced with a fuel crisis, government, according to sources, desperately turned to businessman and Zanu PF benefactor Kuda Tagwirei’s Sakunda which provided 20 million litres of fuel, while the central bank provided an additional 10 million litres.
So dire is the foreign currency situation that Finance minister Patrick Chinamasa has made a desperate appeal to the African Export and Import Bank (Afreximbank) to inject more United States dollars into the economy after warning that the country will experience a foreign “currency drought” between October to February next year due to a fiscal deficit and huge appetite for the greenback.
Foreign currency shortages have forced government to tighten exchange control, amid concerns that it is being externalised.
The value of bond notes, the country’s fiat currency introduced last November to ease foreign currency shortages, last week hit a new low against the United States dollar on the parallel market, losing 30% of its value as fears of rising inflation hit the market.
Chinamasa said Zimbabwe has recorded 11% growth in exports, but barely a year after the Reserve Bank announced bond notes would trade at par with the greenback, the fiat currency is now on the black market trading at a 30% premium with the dollar, while Real Time Gross Settlement transfers have been attracting up to 50% commission, mirroring the severe foreign currency shortages.
“As economic recovery gains traction, we have also noticed that the demand for foreign currency is actually increasing. In other words, some of the challenges we are facing are a result of our own successes, so we run the risk of retarding the economic growth if the economy fails to secure foreign exchange for the feedstock into the economy,” Chinamasa said.
“It is against this background that I am appealing to the board and management of Afreximbank to provide the much needed assistance especially during this foreign exchange drought which period runs from October to February next year. The increasing demand in forex is also emanating from the fiscal side which is currently running deficits that are made to finance the development agenda of this country.”
The central bank recently announced that it would inject bond notes worth US$300 million into the economy backed by a new Afreximbank facility. This week the apex bank also announced a savings bond to mop up cash from the market.
“Exports are increasing. There has been 11% growth in exports since some of these measures (introduction of the Afreximbank US$200 million export incentive facility). Those are some of the achievements which are not written about but we get the figures,” Chinamasa said.
Critics say the depreciation of the bond notes, which were ostensibly introduced as an export incentive has led to market panic with some saying history, could be repeating itself. Zimbabwe inflation reached historic levels in 2008 as the central bank printed money against low production.
Zimbabwe adopted the multi-currency system dominated by the greenback in 2009 after the Zimbabwe dollar was decimated by years of hyperinflation. But an economic downturn triggered by declining business activity and export collapse has left government in a currency dilemma.
Demand for foreign currency to meet varying obligations according to research firm, IH Securities has accelerated the devaluation of bond notes.
“Bond notes have fallen sharply in their value, stirring a wave of massive price increases, especially of basic goods. The high demand for foreign currencies required to effect payments for goods and services sourced externally has seen the value of bond notes declining by as much as 50% of the currency black market,” IH Securities said.
“A transfer now attracts a 48% premium, while cash transactions for smaller denominations range between 8% and 9,5% depending on the currency involved. As a result, prices of basic consumer goods have gone up by between 20% and 50%, as companies and retailers pass on the higher costs to the ordinary consumer.”