Emmerson Mnangagwa, Zimbabwe’s President, is trying to imitate Russian President Vladimir Putin as he tries to revive Africa’s most underperforming currency.
According to Persistence Gwanyanya (a Harare-based economist who is a member of the Reserve Bank of Zimbabwe’s Monetary Policy Committee), Mnangagwa’s government may announce plans to pay services in Zimbabwe dollars as soon as this week. This would be in response to U.S. sanctions on Zimbabwe for its economic mismanagement over the past two decades.
Gwanyanya stated Sunday that there will be a shift in government’s favor toward its own currency. We are learning lessons from Russia. One of these is that heavy dependence upon U.S. dollar is not good. We will try to reflect some of these geopolitical issues within our local economy.
Russia’s efforts to boost the ruble through demanding payment in its currency for oil and gas has resulted in the ruble being protected. Putin took the decision to use this measure due to heavy sanctions against him for his war in Ukraine. It may prove more difficult for Zimbabwe to get rid of its dependence on the U.S. Dollar. The greenbacks can be used to pay almost everything, from fuel to food and medicines to road tolls. Since the beginning of this year, bank employees and teachers have demanded salaries in U.S. Dollars to cover foreign currency-priced living costs.
According to Bloomberg data, Zimbabwe suffered a $1.2 billion trade deficit last year. This compares to a surplus of $203 billion for Russia during the same time period.
Mnangagwa’s government was previously criticized for undermining its currency to favor the U.S. dollar and paying its workers bonuses in foreign currency last fiscal year.
The new measures will allow for increased payment in local currency to pay for services such as passports, import duties, and taxes. Gwanyanya stated that an agreement has been reached with Treasury. Officially, the local currency trades at 159.34 US dollars and has lost a third this year. It is sold on the parallel market at 400 dollars.
Mnangagwa stated last month that the West has met Putin who demands payment in rubles for oil and gas. “So now we are telling our industrialists that all the big companies must use the Zimbabwean dollar to buy any investment.
International lenders are prohibited from lending to Zimbabwe under the Zimbabwe Democracy and Economic Recovery Act, which is a U.S. sanction. Zimbabwe is saddled with $13 Billion in foreign obligations and can’t borrow unless it clears its arrears.
Foreign companies that conduct business with Zimbabwean firms subject to sanctions are also subject to severe penalties. According to Zimbabwe’s central bank, at least 100 correspondent banking relationships have been lost due to restrictions.
After the U.S. dollar was dropped in favor of the Zimbabwean dollar in 2019, the southern African nation attempted to boost its currency. The volatility and rapid inflation have made it difficult for the local currency to gain acceptance.
Gwanyanya stated, “What’s unique about other announcements in past is that the Executive has not weighed in.” “All issues have our support,” Gwanyanya said.
John Mangudya, Governor of the Central Bank, didn’t return a phone call on Sunday seeking comment.
In an opinion piece published in state media on Sunday, Mnangagwa stated that the imminent measures would “increase confidence within the local unit.”
Additional Highlights from the Interview
The “temporary shock” of rising annual inflation to 96.4% in April was a temporary one. We are not going to increase the interest rate. Let’s see how they turn out.
Clearing the central bank auction backlog of approximately a month is key to also solving the volatility in exchange rates. The auction management will signal that we are moving in the right direction.
The main factor behind the backlog in auctions was the slowdown of platinum revenue above the 15% beneficiation taxes. This problem has been solved. The country earns approximately $120 million per month from platinum exports.
