• ZWL depreciated by 26% on Auction market within a week
• However, on the parallel market, it has depreciated by 40%
• Elections fever continues to be the elephant in the room

Harare- The parallel market rate, which is neither overvalued nor determined by the government shoot by 40% within one week to US$1: ZWL5000 on the 26th of May 2023, one of the worst performances since the re-introduction of the embattled currency in 2019. When the Zimbabwe dollar was introduced, it was pegged 1:1 with the US dollar. However, since 2019, the disparity between the official and black market has spiked by over 100% while on the formal market, depreciation streek has widened by 86%. 

The spike in the parallel market rate, which is the real rate, determined by the market forces is a result of a glut in Zimbabwe dollar liquidity as government tries to pay outstanding debts to suppliers and massage employees ahead of the watershed 2023 harmonised elections. 

Since August 2022 after the debuting of gold coins, the rate was stable at ZWL700:US$1 (black market). The stability propelled to the first month of 2023. However, when the government paid its suppliers handsomely in December 2022, the rate started shaking in the second week of January 2023. When the news about a 400% pay rise to soldiers and police emerged in March 2023, that is when the rate madness began, from ZWL1200 to 2500 and from ZWL2500 in April to 3000, 3500, 4000 and 5000 respectively, only in May. 

The spike in the parallel market rate indicates a high level of fiscal indiscipline to impress the security personnel, who have a historic fundamental role in Zimbabwe elections, and pamper citizens through the completion of various projects. 

Historical evidence shows that every election season, Zimbabwe experiences a glut in Zimbabwe dollar liquidity which ultimately leads to a hyperinflationary environment. This was the case in the 2000 elections, when war vets were pampered leading to rapid depreciation of the local currency. 

Money madness was once again witnessed in 2008 which led to the abandonment of the Zimbabwe dollar. Ahead of the 2018 elections, the season witnessed a 41% spike in reserve money, and later in 2019, the Zimbabwe dollar started depreciating at an unanticipated rate leading to a hyperinflationary environment. 

Before 2018, issuance and rollover of TBs became the most pronounced manner of liquidity creation in the economy resulting in the collapse of the 1:1 exchange between the Zimbabwe dollar and the greenback. TBs issued between 2014 and 2018 totalled US$8.2 billion, with the election year alone accounting for about 24% of the TBs.

In March 2023, the government released Treasury Bills, in tranches valued at US$1.4 billion via the Central Bank. This was equivalent to about 30% of the national budget and 50% of March 2023’s M1 (currency, demand deposits, liquid assets). 

That ignited a market correction of the exchange rate of a huge proportion, far more difficult to control since the inception of the Zimbabwe dollar. 

The desire by the government to bribe the electorate through insane salary increments and fulfilling the election promise remains the beast in the room. 

A new survey conducted by Competition and Tariff Commission, the National Competitiveness Commission and the Consumer Protection Commission warned the government against huge pay-outs to suppliers and RBZ against excessive printing of money to buy forex to exporters through the 25% retention thresholds. 

Due to money madness driven by elections fever, Steve Hanke quoted Zimbabwe’s inflation at 717% from 666% in May. 

The government’s voodoo economic policies coupled with untamed absurd corruption remain the elephant in the room. Most hurt are the general populace who are paid in local currency. 

With the latest rate spike, ZWL1 million is now equivalent to US$200. 

A leadership that does not accept responsibility remains a big problem. Despite accepting that the Zimbabwe dollar has failed, the government continues to blame a few individuals, suppliers, retailers, opposition parties and Western sanctions for economic sabotage. 

Equity Axis News