RBZ, Treasury to focus on future of ZWL

The Reserve Bank of Zimbabwe and Ministry of Finance and Economic Development and Investment Promotion, have been tipped to continue focusing on the future of the local currency despite increased usage of the US Dollar in the economy.

FBC Securities in their third quarter report noted; “In the outlook, focus is likely to center on the future of the country’s currency.”

The US dollar remains a dominant feature in the local economic space as the dollarisation trend continues. Currently, foreign currency denominated loans constitute circa 90 percent of total bank loans, while over 80 percent of local transactions are in US dollars.

“Authorities have, however, maintained their position on promoting use of the local currency and have, over the last few years, put measures in place to promote the Zimbabwe Dollar and anchor inflation and exchange rate pressures,” the report read.

Promoting wider use of the local currency has been challenging as economic agents continue to favour the US dollar for transacting and value preservation.

FBC Securities added that, while exchange rate stability has been achieved to an extent, and official inflation figures continue to trend downwards, confidence in the local currency remains low due to past experiences of volatility and value loss.

“Stability of the local currency remains fragile, hinged primarily on government’s ability to continue to control money supply, foster confidence and encourage use of the local currency. A mix of measures to increase the supply of foreign currency, while simultaneously reducing demand for the USD and increasing demand for local currency should also alleviate pressure on the local currency,” the securities firm said.

On the stock market in the last quarter, they believe performance is likely to continue to be impacted by local liquidity conditions and value preservation concerns given existing currency dynamics.

“We expect the appetite for alternative investments to continue to grow as investors continually assess local economic conditions,” they said.

Economist Dr Prosper Chitambara said despite a fragile exchange rate and an inflationary environment, authorities have maintained a positive outlook for the domestic economy.

“Growth projections have been upgraded from 3,8 percent to 5,3 percent on account of better performance by agriculture, mining, ICT and tourism, supported by expected improvements in electricity generation in the second half of the year. Attainment of durable macroeconomic stability is also expected to spur economic growth above the projected 5,3 percent,” he said.

For 2023, cereal production, excluding the winter wheat crop, is estimated at 2,6 million tonnes, 40 percent ahead of levels of production achieved last year.

In mining, growth is projected at 4,8 percent, benefiting from increases in the production of lithium, chrome, diamonds and platinum group metals.

The manufacturing sector is expected to grow by 2,2 percent, driven by a better agricultural season and measures implemented by authorities to tame inflation and exchange rate volatility.

Government projections are notably higher than IMF and World Bank projections of 4,2 percent and 2,9 percent, respectively.

FBC Securities added; “The country continues to face some downside risks to the growth outlook. In their projections, the World Bank and IMF cited global shocks, structural bottlenecks and price and exchange rate instability as restrictive factors.”

Economist, Gladys Shumbambiri, said government measures to anchor inflationary pressures and currency volatility have since impacted positively, as the exchange rate has largely stabilised and inflation continues to slow.

“In the Mid-Term Monetary Policy Statement presented in August, outlining measures to ensure sustainable price and exchange rate stability for the remainder of the year, the Bank reiterated commitment to the tight monetary policy.

“Local inflation figures peaked in June, prompting additional liquidity management efforts by government, ultimately resulting in a broad slowdown in inflation,” she said.

During the year, annual inflation slowed down significantly following adoption of an inflation calculation method that captures the dominance of USD transactions locally.

Annual inflation fell to 18,4 percent, compared to 77 percent reported last month whilst monthly inflation moved to 1 percent in September.

The RBZ expects monthly inflation to continue to moderate in the second half of the year to levels of below 3 percent and annual inflation is also expected to continue to decline and end the year between 60 percent-70 percent.

Dr. Chitambara concluded that, “Pressure on the local currency remains elevated, however, particularly as the second half of the year generally coincides with high fiscal spending to support the main summer agricultural cropping season and bonus season.”-ebusinessweekly