Zimbabwe: Inflation returns to dash hopes of higher growth

By Michelle Chifamba
Posted on Wednesday, 16 February 2022 15:11

People walk past a money-changers sign at a market in Harare
People walk past a money-changers sign at a market in Harare, Zimbabwe, November 26, 2020. REUTERS/Philimon Bulawayo

Zimbabwe’s President Emmerson Mnangagwa hailed 2022 as the “Year of Economic Growth”, but persistent inflation is undermining rosy projections. Without tackling entrenched corruption, analysts doubt that the government can help the majority of Zimbabweans who are struggling to survive.

Both the World Bank and the Zimbabwe government see growth at over 5%, but analysts say this hides some serious issues.

They point to an upsurge in inflation, with food, fuel and accommodation prices all responding to the rising parallel exchange rate of foreign currency against the Zimbabwean dollar.

Average annual inflation in Zimbabwe is projected to fall from a high of 94.6% in 2021, to 32.6% next year and 17.5% in 2023, according to the ministry of finance.

On the ground however, the price of fuel, bread, cooking oil, meat and rent have been rising significantly, economist Victor Bhoroma tells The Africa Report.

  • The cost of bread is currently at $2, from $1 in December, while cooking oil has risen from $3 in 2018/2019 to $4.50 in 2021. Fuel prices have also been rising significantly from $1.20/litre of petrol to $1.45/litre of petrol.
  • Housing costs have also risen exceptionally: high density suburbs now range from $60 for a room, up from $35 in 2019. The minimum cost for renting a three-bedroomed house in medium density suburbs is around $450/month, up from $250 in 2018/2019.

“In comparison with previous years, the economy this year is [expected to] slightly […] improve, but at levels around 2%-4% in terms of GDP,” Bhoroma says as he criticises the World Bank and Zimbabwe government view. “The issue that the government needs to […] address [is] currency. The government need[s] to implement a market-driven exchange rate to ensure that there [are] limited arbitrage opportunities in the market and pricing stability.”

No easy fix for the economy

When President Mnangagwa’s administration came into power in 2018, he vowed to rebuild Zimbabwe’s shattered economy, create employment, and improve living standards for the country’s low-income working population.

Finance minister Mthuli Ncube introduced the Foreign Exchange Auction System in a bid to curb inflation. The National Bank (RBZ) now sells and buys foreign currency at the interbank foreign exchange market to eliminate the pressure on exchange rates due to temporary inflows of foreign capital and to balance the private and government gap.

Zimbabwe’s development plans are fractured ideas that do not work: the economic problems we are facing are self-inflicted…

As at the end of 2021, Zimbabwe’s foreign exchange market was facing imminent threats due to exchange rate disparities. The official RBZ exchange rate traded at ZWL$88/ US$1 while the foreign exchange is now trading at ZWL$120/ US$1 versus ZWL190/US$1 on the black-market.

In December 2021, Zimstats, the government statistics agency, said inflation was at 60.7%.

Sanctions defence

The government blames sanctions for the economy’s non-performance, but analyst Masimba Manyanya disagrees.

“Zimbabwe’s development plans are fractured ideas that do not work: the economic problems we are facing are self-inflicted,” he says.

“The amount of stealing and corruption that is taking place in the country right now is so visible for everyone to see… That is the first major sanction, you do not steal from your own resources.”

Economic recovery rhetoric versus reality

Zimbabwe’s economy can be distinguished into two separate ecosystems, says University of Zimbabwe Desmond Marimire, a policy analyst at the University of Zimbabwe,

“The story of Zimbabwe is one of two different economies: the formal and the informal,” Marimire tells The Africa Report. “The government projects the growth of the formal economy, but it is clueless of the informal economy which has its own life. The sad reality is the informal sector is central to the survival [unemployed] of many, who live from hand to mouth.”

Much of the duality comes down to the two foreign currency exchange markets used: the government-run auction and the parallel (black) market.

  • Zimbabwe’s Reserve Bank and the finance ministry project that the Zimbabwe dollar [bond note] is at par with the United States dollar. Since the Mnangagwa administration came into power in 2018, national budgets are estimated in local currency [ZWL dollar], while the cost of services and goods are pegged in foreign currency [USD].
  • On the black market, $1 = ZWL220 while on the official government market, $1 = ZWL125, but to make money, most businesses follow the rate of the black market. Therefore, an average civil servant (teacher, nurse, police) of ZWL25,000 ends up earning $115 after paying for most services on the black market rate.

“The currency issue – if it remains unresolved – leads to a disconnect in the national budget. The finance minister maintains that the US dollar and bond and RTGs currencies are at par, but there is also contradiction when it says there is a vast difference in value, hence its increase in tax on petrol, diesel and paraffin as well as the requirement for import duty on motor vehicles to be paid in US dollars, as well as revenue to be remitted in US dollars,” says Manyanya.

Economic analysts as well as small and large business owners have been calling on the government to permanently adopt the US dollar to facilitate doing business and promote investor confidence.

However, at a Zanu PF rally last weekend, President Mnangagwa ruled out the dollarisation of the Zimbabwe economy amidst striking teachers demanding a revision of their salaries using USD currency.

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