• Inflation entered the three digits territory for a second month in June
  • Exchange rates on parallel market have soared to US$1: ZWL700
  • Some solutions to the current economic disorder

Harare- Zimbabwe Coalition on Debt and Development (ZIMCODD) said the current economic havoc characterised by high inflationary pressures and volatile exchange rates is a result of recklessness from the Central Bank and fiscal indiscipline within the Finance Ministry. 

In its May 2022 monthly economic survey, ZIMCODD said the whole crisis the economy is facing today dates back to 2019 when the government failed to put a tighter grip over its quenching thirst to finance the 2018 post-election promised projects during the campaigns. 

During the 2018 elections, the government promised to rehab roads, construct cheap houses and increase the process of devolution, projects that require a huge amount of funding to effect. 

However, just like the era of Robert Mugabe, the Second Republic resorted to the cranking machine pumping more money into the market, a scenario which resulted in high liquidity of ZWL electronic money. 

“Granular analysis shows that the current inflation crisis started manifesting in 2019 driven by the Reserve Bank of Zimbabwe (RBZ)’s reckless liquidity and exchange rate management coupled with Treasury’s fiscal indiscipline and short-term financing model for its major projects and programs,” said ZIMCODD in a statement accompanying its monthly economic review. 

RBZ data shows that ZWL market liquidity remains above the roof as the broad money supply continues to mount by more than 100% year on year, a major inflation amplifier. 

This has upset the balance between available US dollars and Zimbabwe dollars resulting in the fast depreciation of the local currency. 

“Therefore, authorities should continue to withdraw excess ZWL liquidity to ensure a money supply growth rate that is in tandem with the growth of economic activity in the real sector.”

Currently, the government is using housing and road projects as a forerunner to the upcoming 2023 harmonised elections. Housing and especially road rehabilitation programs gained momentum in mid-2021 and early 2022 since the election of President Emerson Mnangagwa in office in 2018 which practically is perfect timing for the upcoming election time. 

This, without doubt, is going to further upset the inflation which has already reached the boiling point. 

RBZ stats review that broad money rose by more than 100% year-on-year since Jan 2022 hitting 113.4% in January and 23.8% in February while by 151.4% in March.

Besides financing the projects mentioned above, last month government announced plans to pay gratuities to over 160 000 war veterans, one of its major campaigning arms. In 1997 when the government of Robert Mugabe did the same, the Zimbabwean dollar started heading southwards. 

Historically, the government has a record of tempering RBZ policies forcing the governor to resort to the cranking machine to cushion especially the security agents who are also pivotal in ZANU-PF campaigns. 

Between 2012 August and 2013 August election period, money supply increased by 6% from US$3.6 million to US$3.9 million. However, the money supply saw a fingertip growth as this was the time of government of national unity so the government expenditure was tightened by the opposition.

From June 2017 and June 2018 towards another elections period, RBZ increased its money supply by 41% from US$6.5 billion to US$9.1 billion with a month-on-month increase of 6.84%.

Meanwhile, June inflation rose to 191.6%, up from May’s 131.7%, year on year according to Zimstat’s latest data. The annual rate of inflation has now doubled from April.

Monthly inflation in June was 30.7%, 9.7 percentage points higher than May’s 21%. In June 2022 year-on-year inflation continued in the three digits territory, a record high since June 2021 while from a month-on-month basis, inflation soared to 30.7% making it the third month of double digits inflation, the highest outturn since July 2020 when it was recorded at 35.5%. 

During the presentation of the latest fiscal measures by President Mnangagwa in May 2022 when lending was suspended, the blame was shifted to people who are not loyal to the Second Republic while Governor Mangudya was on record blaming the Ukrainian war for the inflationary pressures currently haunting the country. 

According to lobby groups like the Confederation of Zimbabwe Industries (CZI), one of the drawbacks effects on the economy is the government’s failure to accept responsibility. They are the ones in the kitchen while they keep blaming neighbours for spoiling their soup. 

The parallel market is championing the rise in inflation with US$: RTGS rate currently soaring at 700.

However, it is worthy to note that as far as government is responsible for the rise in inflation due to reckless economic policies, command economics courtesy of Statutory Instruments and mismanagement of ZWL liquidity, and weak exchange rate management mechanism in place, inflation, is also being caused by behavioural economics, something that RBZ cannot curtail. 

Since 2019 when the Zimbabwe dollar was reintroduced by Mangudya, the market started rejecting the currency fueling black market rates, which in turn are driving up inflation. Due to 2008 hyperinflationary memories, the public has no confidence in whatever policies officials will put into stabilising the currency. 

The hard truth that government should accept is that the Zimbabwe dollar has failed dismally to meet its two targets, to be accepted as a medium of exchange and as a measure and store of value. 

Therefore, the government should adopt either the Rand or US dollar to bring stability and curtail the prevailing headwinds, particularly for the short term until economic fundamentals are in order. 

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