Nqobile Bhebhe, Senior Business Reporter
The GOVERNMENT called for calm following the recent price hikes, saying that the measures implemented on the fiscal and monetary fronts will ensure economic stability and protect citizens from negative shocks.
In a ministerial statement delivered to Parliament on Thursday in response to concerns over the recent price escalation, Finance and Economic Development Minister Professor Mthuli Ncube said speculative expectations of higher inflation and a Future exchange rate depreciation were the main drivers of exchange rate volatility and the ultimate price increases.
This is despite the stable economic fundamentals and economic reform milestones achieved so far, which have seen Zimbabwe increase domestic production and achieve 7.8% growth in gross domestic product last year, attract more investment, stimulate infrastructure development and increase its export earnings.
While acknowledging the market shocks induced primarily by the ongoing Russian operation in Ukraine, which has disrupted global supply chains, Professor Ncube said exchange rate volatility induced by the speculative behavior of some economic actors influential people made the situation worse.
This has prompted the government to take drastic measures, which were announced by President Mnangagwa last weekend, to try to restore common sense and build confidence in the use of the local currency.
These included the temporary freezing of loans granted by banks to entities and individuals, the liquidation of the ceded part of the export earnings to be settled at the willing buyer-willing seller exchange rate, the suspension of payment by a third country on foreign payments and the promotion of discipline in the stock market by prohibiting, among other things, transfers between accounts.
“Inflation is now fueled by expectations of higher inflation and exchange rate depreciation in the future,” Professor Ncube said.
“The prices of goods and services are quoted at a premium.
This results in a self-fulfilling upward movement in the general prices of goods and services in the economy.
He said the government, together with the central bank, had adopted several policy measures to stabilize the currency and reduce inflation, including, among others, fiscal consolidation and limiting the growth of the reserve currency. .
While the global economy is also under pressure, the government is convinced that recent movements in exchange rates were driven by negative sentiments and indiscipline among economic agents as opposed to economic fundamentals, the minister said.
As such, he said the series of policy measures announced by the President last Saturday will address the unwarranted and sustained depreciation of the local currency and tame the upward spiral of inflation.
In addition, Professor Ncube said the measures are aimed at restoring macroeconomic stability, boosting confidence in the economy, increasing the attractiveness of the local currency, preserving value for depositors and investors and making in the face of market indiscipline.
He said the economy remains generally on sound footing, with a marked improvement in performance, building on growth in 2021, which is above the 3.4% average growth for sub-Saharan Africa.
“This was mainly due to a favorable 2020/2021 agricultural season and rising international mineral commodity prices,” Prof Ncube said.
“A stable micro-economic environment has improved access to foreign exchange through the foreign exchange auction system and better management of the Covid-19 pandemic.
All of these factors contributed to a strong performance in 2021.”
This week, the Confederation of Zimbabwe Industries (CZI) in its 2021 Manufacturing Survey Report said capacity utilization in the manufacturing sector jumped to 56.52% in 2021 from 47% in 2020, largely due to increased investment in the industry.
According to the survey report, 42.7% of manufacturing sectors enter the currency auction market.
The report indicates that companies obtain 39.5% of their foreign exchange requirements from the auction market.
The beverages, tobacco and beverages sub-sector recorded the highest level of capacity utilization in 2021 at 79%.