• Zim dollar appreciated to ZWL4771.3854 this week
• This was from ZWL4998.8352
• This was a 5% appreciation

Harare- The Zimbabwe dollar has sustained the recovery trend on formal market after firming by 5% on the latest auction market from ZWL4998.8352 during the previous week to ZWL4771.3854 during the week under review. This marks the fourth consecutive appreciation streek on the foreign exchange auction market. A 5% increase however, was the least performance in these five weeks.

The number of bids remained stationary at 11 and non were rejected. The bank put US$20 million on offer and US$11.5 was allotted, giving a remaining balance of circa US$8.5 million.

The stability on the formal market comes after a series of economic stabilisation measures to address the ailing currency. These measures include suspending import duty on basic goods, introduction of gold-backed digital tokens, limiting the weekly forex auction envelope, introducing a wholesale forex auction system for banks, and having the Treasury take over both exporters' forex surrender requirements and RBZ external debt obligations.

These measures have helped to reduce excess liquidity in the formal markets, bringing much-needed stability to the markets. According to forex auction statistics, the RBZ sold a total of US$77.42 million at the auction market between June 7 and July 11 mopping up circa ZWL457.82 billion. This reduced the amount of ZWL available for use by economic agents, leading to a shortage of ZWL in the market.

However, the exchange rate on the unofficial market remains firm, trading in a region of 8500 to 9000 against the US dollar.

Also, prices continue spiralling in Zimbabwe dollar denominated terms due to forward indexing and confidence deficit in the currency market with some companies rejecting payments in local unit.  This speaks to another tone against the appreciation tone being preached by the RBZ.

This brings up the question of whether the latest appreciation is just an illusion to please the electorate. The latest appreciation trend is a manufactured one, not defined by market forces as no economic fundamentals have been put in place that sustains a long-term currency appreciation. That is why the firming of the Zimbabwe dollar’s exchange rate in official markets is occurring at a greater pace than what is happening in the alternative markets.

While the rates are falling in both markets, the average premium is mushrooming from 14% on the 21^st of June to 48% on the latest auction market held on the 18^th of July. This is foot printing instability in prices indexed in Zimbabwe dollars.

The current stability has not come on the back of implementation of meaningful reforms or fiscal and monetary discipline but is just the government starving the market of Zimbabwe dollars by not fulfilling its obligations.

The Treasury is yet to pay contractors undertaking ongoing infrastructure projects, settle exporters’ forex surrender requirements, and fulfil financial obligations on RBZ external debt it recently assumed.

Also, without considering rising spending pressure coming from the pending elections, Treasury is expected to offer a salary increment to all civil servants lest it risk jeopardising public service delivery as a result of likely devastating labour strikes. It will also foot the bill for grain purchases from farmers during the ongoing 2023/24 marketing year.

As a result, the recent appreciation of the Zimbabwean dollar is not genuine, and businesses' failure to adhere to official rates cannot be seen as intentional or malicious, but rather as a rational response to the prevailing economic conditions.

Despite the stabilisation of exchange rates in both markets, businesses cannot immediately reduce prices. The foundation of sustainable enterprise is based on minimizing costs and maximizing profits.

In addition, it is important to consider that many businesses restocked when the exchange rates were unpredictable, which now makes it difficult for them to sell products at a lower price than their cost, resulting in significant losses.

Furthermore, the market lacks confidence in the government's policies, particularly the recent appreciation of the Zimbabwean dollar. The market has learned from past experiences, such as when the foreign auction system was introduced in June 2020, which led to a period of price and ZWL stability, but it was short-lived as the authorities quickly reverted to fiscal and monetary indiscipline. This inconsistency in policy negatively affected businesses that had accumulated Zimbabwean dollars.

Thus, the market believes that the current stability will not be long-lasting due to the government's track record of policy inconsistency. It is highly conceivable to the market that the ongoing stability will be temporary due to the government’s track record of policy inconsistency.

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