Zimbabwe on edge as it announces re-introduction of local currency
HARARE – Zimbabwe was on edge on Sunday in anticipation of further price hikes after the government raised the price of fuel by more than 200 percent just a few hours after Finance Minister Mthuli Ncube announced that the country was all but set to introduce a local currency in the next 12 months as Harare battles a debilitating cash crunch.
Hard currency shortages have grounded business and raised the cost of living for Zimbabweans as inflation – propelled by a thriving parallel market for forex – wreaks havoc on the economy. Big companies in Zimbabwe such as AB InBev’s unit, which is owed about US$120 million (R1.7 billion) in unremitted dividends, have hiked prices.
The government of President Emerson Mnangagwa has resisted re-dollarisation of the economy and over the weekend the Finance Minister said Zimbabwe would have its own currency in the next 12 months. This is despite growing calls for either full dollarisation or adoption of increased usage of the rand in the country.
“We should be close on currency reforms. We are less than 12 months away from currency reforms,” Ncube said on Friday. “On the issue of raising enough foreign currency to introduce the new currency, we are on our way already, give us months, not years.”
Zimbabwe ditched its own currency after it was ravaged by hyperinflation in 2009 under former President, Robert Mugabe who was ousted by the military to pave way for Mnangagwa in November 2017. The mineral-rich southern African country, banking on gold, tobacco, diamonds and chrome, has been using multiple regional and international currencies, alongside the quasi-local currency, bond note, as legal tender.
The bond notes have been losing ground and the government has been blamed for printing more value into the local unit through having excessive electronic bank balances via overblown issuance of treasury bills.
With prices skyrocketing and fuel shortages halting economic activity, Mnangagwa on Saturday night raised the price of fuel from about Z$1.30 a litre to about Z$3.30, which puts the price of fuel in terms of the parallel market rate at around US$1 a litre.
“These prices are predicated … on the need to keep fuel retailers vibrant. Tourists will fuel and refuel at designated points at the price of US$1.32 for petrol,” Mnangagwa said.
He said the fuel shortages that had resulted in long queues and which had disturbed business operations for local companies had been worsened by “illegal currency and fuel trading activities” on parallel and informal markets.
Although the government said it was not expecting further price increases, most economists and business executives told Business Report on Sunday that the fuel price hike will have knock-on effects on prices, with businesses passing on the costs to consumers.