- Zimbabwe dollar continues its downward trajectory on the RBZ-governed auction market system, falling 1% post-elections
- Concerning disparity persists between formal and parallel market rates despite government management of the official exchange rate
- Significant depreciation of the Zimbabwe dollar on the black market is raising doubts about market forces' influence on the auction market
Harare- The Zimbabwe dollar weakened on the latest RBZ-governed liberalised auction market system, falling to ZWL4712.1675 from ZWL4647.9681 last week, representing a 1% decline. This marks the third consecutive week of the currency maintaining a downward trajectory post 2023 elections.
While the government may be successfully managing the official exchange rate, there remains a concerning disparity between the formal rate and the parallel market rate.
Despite experiencing marginal declines on the auction wholesale market, the Zimbabwe dollar is facing significant depreciation on the black market, where it is currently trading at ZWL7.5k per dollar. This translates to a premium of 38%, raising doubts about the extent to which the wholesale auction market is truly determined by market forces.
The government currently has pending payments to contractors, and with export receipts surpassing US$500 million in a month, it is difficult to accept the notion that companies are unable to bid US$20 million offered on the auction market.
However, it can be acknowledged that the government is not consistently paying exporters their 25% RTGS component on time, thereby creating an artificial shortage. The question that arises is, how long will this situation persist?
The current stability in Zimbabwe appears to be a temporary calm before a potentially turbulent period. Following the elections, the country is already grappling with electricity challenges, compounded by the impact of the disputed election results. These factors contribute to an uncertain and potentially tumultuous situation in Zimbabwe.
It is unclear how long the government will continue to restrict liquidity, but there is a likelihood that they will pay suppliers and exporters in smaller instalments rather than in full amounts. This approach may be a strategy to manage limited US Dollar liquidity and mitigate the strain on the country's financial system.
Given the volatility in the political and economic landscape, companies should prepare for the worst-case scenarios. It is important for businesses to be proactive and implement contingency plans to navigate potential challenges and mitigate risks. Being prepared for uncertainties can help companies adapt and survive in a volatile environment.
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