Inflation is expected to remain elevated in Zimbabwe this year as its local unit of exchange, the Zimdollar, continues to devalue on both the official and unofficial markets while interest in gold coins introduced by the country to mop up excess liquidity has remained high.
Yearly inflation in Zimbabwe closed 2022 at 243.7% according to data from the Reserve Bank of Zimbabwe. The Zimdollar has been weakening, falling to $1:ZWL1 000 on the parallel market and around $1:ZWL735 on formal markets.
Zimbabwean economics professor, Gift Mugano, said Zimbabwe’s elevated inflation was deepening dollarisation, blaming this on excess treasury liquidity, and requirements for exporters to surrender a portion of their earnings for conversion into local currency.
Data from the central bank shows that foreign currency account payments for Zimbabwe amounted to $7.2 billion (R123.6bn) in 2022. Mugano has now projected higher inflation and a widening of the exchange rate for the Zimbabwe dollar for 2023.
“The 2023 budget is unfortunately going to worsen the situation (and) 2023 is an elections year and the budget carries excessive funds. I am still convinced that the following remains our economic outlook by June, 2023: annual inflation 400% (and) exchange rate (at) ZWL1500/$1,” said Mugano.
Reserve Bank of Zimbabwe governor, John Mangudya, believes that gold coins are an alternative foreign currency investment to dissuade traders, investors and other economic players from holding and hoarding forex for speculative purposes.
The International Monetary Fund has cautioned Zimbabwe against gold coins, but Mangudya insists on continuing to issue the assets, which are hedged against movements in the international spot gold price.
“Use of gold coins for mopping excess liquidity is particularly important in the dual currency environ where the public has a choice of holding both the dollar and local currency,” said Mangudya this week.
Zimbabwe has sold about 11 000 gold coins, with 35% of these taken up by individual investors and the balance by corporates.
Against this backdrop, the Zimbabwean central bank says it will not discontinue the gold coins “until such time when there is a high preference” by Zimbabweans “to hold domestic currency-denominated” assets.
Banking sector finance managers say elevated inflation and high interest rates are making it difficult for local companies to borrow in local currency for production purposes. Some local credit retailers have also had to discontinue domestic currency liquidity.
Asset managers have however been warming up to the Zimbabwe gold coins, with Bard Santner launching a Zimbabwe gold coin unit trust this week. The gold coins are aimed at mopping up excess local liquidity, thereby strengthening the local unit of exchange which has been highly volatile and prone to value loss.
BUSINESS REPORT