30 September 2024
The Zimbabwean economy remains in a dire state, as the ongoing currency instability continues to undermine growth and worsen the livelihood of citizens. While the formal sector has reluctantly adjusted to the official exchange rate of approximately 1 USD to 25 ZWG, the informal sector, which constitutes a significant portion of our economic activity, remains chaotic. Informal traders insist on exchange rates ranging from 1 USD to 30 ZWG, with some unscrupulous elements demanding up to 1 USD to 50 ZWG. This stark disparity is emblematic of the confusion and inconsistency that pervade the market.
Impact of Multiple Exchange Rates
The consequences of these conflicting exchange rates are wide-ranging, creating pervasive market chaos:
1. Price Volatility: The disparities in exchange rates have led to unpredictable price changes, making it nearly impossible for ordinary consumers to budget for basic needs. This is deeply destabilizing for households across the country, contributing to an increase in poverty and reducing the ability of citizens to access essential goods.
2. Erosion of Purchasing Power: Inflated exchange rates in the informal market are steadily eroding consumer purchasing power. As prices soar, more and more Zimbabweans find themselves unable to afford basic goods and services, pushing already vulnerable populations into deeper poverty.
3. Stifled Economic Growth: Multiple exchange rates deter both local and foreign investors. Businesses are reluctant to invest or expand in an unpredictable economic environment, which stifles economic growth and job creation. This lack of economic dynamism also affects the country's overall development potential.
4. Widening Inequality Gaps: The disparity between those who can access the official exchange rate and those reliant on informal rates creates a society of “haves” and “have-nots.” This growing inequality is exacerbating socio-economic divisions and undermining efforts to build an inclusive, prosperous Zimbabwe.
LEAD's Policy Position: Toward a Unified Exchange Rate
Labour Economists and Afrikan Democrats (LEAD) call for immediate action to address this instability. We propose a four-pronged approach to stabilize the currency, bring uniformity to exchange rates, and create a conducive environment for economic recovery:
1. Implement a Unified Exchange Rate:
The government should establish a single, market-determined exchange rate by eliminating the multi-tier system. To ensure stability, this exchange rate must be anchored in economic fundamentals, accurately reflecting supply and demand forces. This will involve consultations with economic experts, business leaders, and other stakeholders to arrive at a fair and sustainable rate.
Transparency in currency allocation is essential to prevent opportunities for corruption or arbitrage. Foreign currency transactions must be streamlined and centralized, with oversight mechanisms to ensure equitable access.
2. Strengthen Monetary Policy:
The Reserve Bank of Zimbabwe (RBZ) must adopt and maintain consistent, credible monetary policies that limit excessive money printing and control inflation. Setting clear inflation targets can provide the foundation for a stable exchange rate, while communicating these targets publicly will help restore confidence in the ZWG.
Further, a consistent monetary framework that prioritizes exchange rate stabilization over short-term political considerations will be critical in rebuilding trust with both the Zimbabwean people and international investors.
3. Enhance Oversight and Regulation:
Proper oversight by the central bank and relevant financial bodies is key to ensuring adherence to the unified exchange rate. LEAD proposes establishing a robust, centralized monitoring mechanism for forex transactions to prevent black-market activities.
Anti-corruption initiatives, coupled with stronger regulatory enforcement, should be implemented to tackle market manipulation and abuse, ensuring that individuals or groups do not profit from the existing currency chaos at the expense of ordinary citizens.
4. Support the Formalization of Informal Businesses:
To reduce reliance on informal exchange rates, LEAD advocates for measures that will help informal businesses transition into the formal sector. Simplified business registration processes, tax incentives, and access to affordable credit will provide informal traders with the impetus to formalize.
Formalization will facilitate broader economic inclusion, allowing these businesses to access formal financial systems and engage at the official exchange rate. Such measures will also contribute to a broader tax base and improved economic data for better policy planning.
Anticipated Outcomes of LEAD’s Policy Approach
If implemented, our proposed actions will have a positive impact on the economy and citizens:
1. Economic Certainty and Predictability: A unified exchange rate will eliminate confusion and stabilize prices, allowing citizens and businesses to plan their budgets effectively. This will reduce the unpredictability of consumer goods and services, helping restore economic confidence.
2. Improved Standards of Living: Stabilizing the exchange rate will contribute to containing inflation, thereby protecting the purchasing power of ordinary Zimbabweans. This will allow them to better meet their basic needs, alleviating the immediate impact of poverty.
3. Increased Access to Essential Goods and Services: With a consistent exchange rate, businesses will have a more predictable environment in which to operate, which will increase the availability of goods and services. Foreign currency inflows will also be better regulated, reducing the scarcity that exacerbates the struggle for survival among vulnerable groups.
Role of the International Community and Regional Organizations
Zimbabwe can not solve its economic crisis in isolation. LEAD urges the international community and regional organizations to:
1. Provide Technical Assistance: Economic stabilization will require the expertise of institutions like the African Development Bank (AfDB), International Monetary Fund (IMF), and others that have experience managing exchange rate crises.
2. Offer Economic Aid: Zimbabwe needs targeted financial support to address the current balance-of-payments challenges, reduce inflation, and support vulnerable citizens during this economic transition.
3. Facilitate Regional Trade: Strengthening regional trade agreements will help Zimbabwe access a larger market for its goods and services, ultimately aiding in the rebuilding of our economy.
Conclusion
A stable and unified exchange rate is crucial for Zimbabwe's economic revival. By implementing a unified exchange rate, strengthening monetary policy, enhancing oversight and regulation, and supporting informal businesses to formalize, we can bring much-needed stability to our economy.
Labour Economists and Afrikan Democrats (LEAD) will continue advocating for these necessary measures, emphasizing transparency, inclusiveness, and accountability. We urge the government and all stakeholders to act swiftly and responsibly in addressing these challenges so that Zimbabwe can move toward a path of sustainable growth and prosperity.
Linda Tsungirirai Masarira
LEAD PRESIDENT