Economist Gift Mugano has predicted that Zimbabwe may dollarize by June.
Gift Mugano is a leading economist and executive director at Africa Economic Development Strategies. He spoke as Reserve Bank of Zimbabwe governor John Mangudya told the Confederation of Zimbabwe Industries that Zimbabwe would be using its currency as the main medium of exchange by 2027.
The economist strongly believes that the Zim dollar will collapse because of the ever-changing black market rates. The official exchange rate this week was US$1: ZWL$120 and the black market rate was US$1: ZWL$235.
Prices of basic commodities are increasing every day and this has increased the demand for salaries in US dollars. Addressing participants during an Employers Confederation of Zimbabwe symposium in Harare yesterday, Mugano projected that inflation would shoot to 100% by June this year. He also said the official and parallel market rates would shoot further.
Mugano also spoke about how the increased rates would be driven by huge payments in Zim dollars which people would use to buy foreign currency on the black market. He spoke about how Chinese construction companies –though paid in Zim dollars- would not send Zim dollars back to China. But they would go to Roadport (black-market) and buy US dollars. He also spoke about Tobacco farmers that will also join the queues on the black market with intention of buying US dollars with the Zim dollars government would have paid them.
Mugano expressed his concern over how the government spends the US dollars available to them. He made mention of the money received from the International Monetary Fund through Special Drawing Rights in August 2021. The money has been allocated to projects he felt were not urgent as the US$144 million allocated to the Masvingo Road Interchange Development Project, also known as the Mbudzi roundabout.
Mugano is right that the Zim dollar is very unstable. And it is causing a lot of panic, especially amongst those that are being paid in local currencies. We see this in how the teachers are on strike because they need more money to stay afloat. More and more people are demanding USD for their goods and services because they have no faith in the Zim dollar. You could go to bed with a thousand US equivalent in local currency and wake up tomorrow with just a dollar.
Although using the US dollar as the official currency in Zimbabwe may seem like a good idea, the after-effects of that decision may not be pleasant. The government does not have the capacity to pay all civil servants in USD as seen by their response to the teacher’s requests. Paying civil servants in USD would mean that the government would need to collect more taxes and this will further affect the prices of basic commodities in US dollars.
Perhaps a better approach can be found in Mugano’s expressed concerns. If the government held on to the available US dollars and used them to boost the economy instead of spending projects that do not need immediate attention it could prevent the further erosion of the Zim dollar.