The Zimbabwe Dollar (ZWL) is expected to accelerate its downfall in the few coming months as fiscal and monetary pressures will force authorities to backtrack on their hawkish monetary policy stance, research firm Morgan &Co predicts.
The Central Bank governor, Dr John Mangudya has become synonymous with the catch-phrase, “stay the course,” when it comes to tightening money supply in the economy as part of his strategy to curb inflation and further deterioration of the ZWL value.
However, this has had limited success, having partly tamed the foreign currency exchange market from fluctuating in the second half of last year.
But with the economy facing a debilitating liquidity crunch that has been worsened by a plethora of demands on the fiscal side, whatever action is taken by the authorities will subsequently lead to the creation of money, which yields an inflationary outcome.
Already the economy shrunk, so is the tax revenue base.
“We opine that there are several pressures that could draw monetary authorities to inject more ZWL into the economy, chief of them being an inadequate amount of ZWL in the economy to support the current FX retention and increase fiscal demands,” said Morgan &Co in its 2024 Economic Outlook Report released today.
“Further the widening gap between the official and parallel market rate will likely trigger a devaluation of the ZWL in the formal market. All this points to sustained inflationary pressures in 2024.”
The effects of the ZWL depreciation complicates government efforts for economic growth.
Given that most, if not all, goods and services are now indexed to the prevailing exchange rates, most of the country’s ZWL inflation can be traced back to the depreciation of the local unit of transacting.
“While official inflation figures proffer an inflation rate of 26.5% for the month of December 2023, our estimations of ZWL inflation indicate that it currently ranges between 550% and 600%. Considering that the ZWL’s value continues to depreciate, we maintain that YoY inflation -ZWL inflation- will likely remain in triple-digit territory in 2024,” reads the report.
Currently, Zimbabwe’s highest currency denomination is the ZW$100 note which hardly purchases anything on the market. In real terms, the ZW$100 note translates to US$0.006.
The Central Bank has not issued any plans to introduce a higher denomination, which could put pressure on printing of more notes to quench the market of its ZWL currency needs.
