- Zimbabwe’s battered economy is still struggling.
- The interest rate is at a staggering 200% and public service wages have been hiked by as much as 100%.
- The government has introduced a raft of measures to try to draw investment, including new gold coins – but so far, few are biting.
Zimbabwe’s battered economy has continued to struggle, heightening an uncertain operating environment for companies. The government insists, though, that opportunists are driving down the Zimbabwe dollar currency through speculative currency trading, hence the raft of new finance measures announced Monday.
The Reserve Bank of Zimbabwe said its Fidelity Printers unit will mint gold coins for use as a store of value on the local market after raising interest rates from 80% to 200%. Zimbabwe’s year on year inflation rate currently stands at 192% for the month of June.
In a subsequent notice to banks dated 28 June, the central bank has also hiked “the minimum deposit rate for Zimdollar savings from the current 12.5% to 40% per annum” while also mandating that “no other person may borrow on behalf” of another.
“Banks will be guided by the apex bank policy rate. While we expected that the interest rate would have to go up, the magnitude is overboard and reflects that this kind of aggressiveness is out of desperation to contain the inflation and monetary sector mess,” a finance director with a Zimbabwean finance institution said Tuesday.
Finance Minister Mthuli Ncube has also sought to contain an emerging civil service unrest situation by hiking salaries for government employees by as much as 100% in addition to other non-monetary benefits.
The government of Zimbabwe has sought to re-assure investors after gazetting into law a statutory instrument that makes the US Dollar legal tender for the next five years and mandates that borrowings in foreign currency be legally payable back in hard currency.
However, fewer economic players have been moved by the latest measures introduced by the Reserve Bank of Zimbabwe and Treasury. Confidence is still problematic and efforts to try to force business to adopt the problematic official exchange rate – it trails the much more popular street rate by multiples – have stoked up worries of price controls.
Analysts at brokerage firm, Morgan Company said on Tuesday that the new interest rate policy will “come as a strain on businesses with high working capital needs” while likely to “affect stock market liquidity”.
The brokerage firm is thus advising investors that “inflation trends will prevail” due to cost-push factors and low confidence in the Zimbabwe dollar. With Zimbabwe shifting from an auction exchange rate for foreign currency to a bank-led willing-buyer-willing-seller regime, other pressure groups such as labour unions are sceptical.
“The willing-buyer-willing-seller principle is likely to be ineffective because of the lack of public confidence in the banking sector,” the Fight Inequality Alliance of Zimbabwe said.
Japhet Moyo, secretary general of the Zimbabwe Congress of Trade Unions, criticised the government’s new finance and monetary measures, saying the policy pronouncements were inadequate to deal with the continued loss of value in the local currency. This meant that employees in Zimbabwe would continue to be impacted by a runaway exchange rate.
He said: “The only inescapable solution is for the government to abandon the local currency and resort to US dollar until all the economic fundamentals are in place for the re-introduction of the Zimbabwean dollar.”
The labour union is now urging its affiliate unions to “start negotiating for wages and salaries in US dollar as the situation has become untenable” for the majority of workers. Business leaders in Zimbabwe told Fin24 that they were consulting their members on a response to the new policy measures.
However, some executives said the new measures were a “reinforcement of measures that have been in place and which have proven to be ineffective” over the past few months.
They said “enforcement of businesses to use the willing-seller-willing-buyer regime for pricing is an indirect price control” mechanism by the government.
Ncube, who insisted that all economic fundamentals have been corrected, maintains however that there will be no price controls although he conceded that he will have to revise down Zimbabwe’s economic growth outlook for this year.