De-dollarization Market Based Not Command: Economic Expert

MUTARE– Government is setting itself for failure by adopting a command approach to de-dollarization, a process which should have been market led, a top economist has said.

Prosper Chitambara an economist and lead researcher with Labor and Economic Development Research Institute of Zimbabwe (LEDRIZ) said ditching of a strong currency in preference to a weaker local currency poses a greater threat to the economy.

Chitambara says these factors should be market based and not emanate from government decrees as this works against the ‘distrusted’ local currency, posing a greater threat to internal and external competitiveness.

“De-dollarization should have been a market-based process and not a government-decreed and command process.

“While the adoption of a relatively strong currency poses external competitiveness challenges, the continued use of a weakening and distrusted currency poses a greater threat to both internal and external competitiveness as well as sustainability,” said Chitambara.

Sustainability of the local currency hinges on confidence and production capacity, both which are currently lacking in the country, said Chitambara.

He said the current macroeconomic challenges have bred speculatory pressures compounded by the depreciation of the local currency on the black market.

“So basically the value and sustainability of any currency is a function of production and confidence. Both are currently weak and so the ZWL$ has been depreciating on the black market.

“There have also been a lot of speculative pressures, people don’t trust and love the local currency,” he said.

Chitambara warned that the economy will contract significantly this year due to a myriad of challenges including continued power outages, a poor agriculture season, macroeconomic instability and the effect of the global Coronavirus pandemic (COVID -19).

He however said the pandemic inversely presents an opportunity for adoption of homegrown solutions, rethinking of macroeconomic and development policies, as well as scrapping of toxic taxes which have forced businesses to operate informally.

“Poor agricultural season, COVID-19, continued power outages, and macroeconomic instability will result in the economy contracting again this year

“The COVID-19 (however) provides a glorious opportunity to look inwards for solutions to our development challenges and to rethink macroeconomic and development policies,” said Chitambara.

On the highly informal economy he said, “A key reason why Zimbabwe has the largest informal economy in the world, according to data from the IMF, is because of a plethora of taxes, fees, levies, and regulatory encumbrances that increase the cost of compliance thereby driving most businesses underground.”

 

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