Business

Ran Away Exchange Rate Caused By Govt’s AppetiteTo Control Monetary Systems

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By Jabulani Khumalo

Zimbabwe faces serious economic instability owing to failure by the government to deal with monetary fundamentals towards currency stabilization.

 

Professor of Economics at the University of Zimbabwe ( UZ ) Gift Mugano said returning the Zimbabwe dollar (bond note) without ensuring its stability, that it stores value and acceptable was ill advised.

 

 

Giving statistics on the performance of the economy on Sly Media TV, the economics Professor said President Mnangagwa’s administration had since 2018 failed to make any improvements and stabilize the economy.

 

 

“When you look at our economy the major issue is exchange rate challenges. How does a country run with three exchange rates? That tells you the serious confusion the policy matrix of the government has.”

 

 

“We are at a point where we are chasing inflation and exchange rate at the same time, where the rate is now at 350 RTGS against 1USD on the parallel market, and the government has two official rates the Auction system rate which is at 155RTGS to 1USD and the inter-bank rate which was officialised by government which is around 230-240 RTGS depending on which bank you go to” he said.

 

 

Professor Mugano went on to say that the two official exchange rates are indicative that the government is manipulating the system and wants to control the market.

 

He said controlled exchange system had detrimental effects on exporters who find it difficult to access foreign currency on time on the Auction system.

 

 

“Exporters are suffering because they face a controlled rate which is 155 and when they are exporting 40 percent of the currency is taken by central bank and it is liquidated at the same rate. Same applies with tobacco farmers, 25 percent of their proceeds is converted into Zimbabwean dollars at the official rate, deliberately,” he said.

 

 

President Mnangagwa has a vision of transforming the country’s economy into an Upper Middle class by 2030, but figures by The World Bank show that the annual inflation rate now stands at 207% against the 2018 figure of 156%, while the exchange rate is also galloping from the 2018 figures of Z$260 against $1USD to the current Z$350 to $1USD on the parallel market.

 

Though the government says it is concentrating on roads construction and rehabilitation, dam construction and Irrigation schemes as well as increased power generation, professor Mugano says those are misplaced priorities whose financing model is wrong and is catalyst to the erosion of the Zimbabwe dollar value.

 

Robert Tapfumaneyi