Harare - With no currency of its own and heavily reliant on its resources sector, Zimbabwe was vulnerable to currency fluctuations and weaker commodity prices, experts said this week following currency depreciations in South Africa and China, the country’s major trade partners.
Zimbabwe ditched its own currency in 2009 after it sank to historic hyper-inflation lows and adopted a multiple currency basket anchored by the US dollar and the rand.
However, the central bank in the country has since expanded the legal tender in Zimbabwe to include the Chinese yuan and Japanese yen, among others.
This week, the rand sank to a 14-year low after it breached R13 to the dollar for the first time since December 2001 while earlier this month, China depreciated its yuan by 4.7 percent in value to 6.401 per dollar, its biggest decline margin in the last 20 years.
Economists in Zimbabwe told Business Report this week that under normal circumstances, this would have been a boon for Zimbabwe’s economy.
Cash shortage
“Under normal circumstances this is a development that would have been welcome for businesses and the economy as it would mean less US dollars buying more rands and more yuans. But do we have the US dollars as an economy? Cash is in short supply in the economy, so actually we will suffer the same impact,” said Vandudzai Zirebwa, an economist at the Buy Zimbabwe lobby group.
However, other economists said the depreciation of the rand and the yuan could be a boon for informal traders in Zimbabwe although demand for informally imported goods and commodities had been projected to fall due to slowing economic activity there.
Companies in Zimbabwe have also started focusing on export markets to survive weak demand back home in the aftermath of job dismissals that trade unions say have affected about 20 000 workers.
“Informal traders will have some more cash but then this will not benefit the economy in any way because it is money that will be in the informal sector,” economist Moses Moyo said. “The advantages for the informal sector of depreciating rand may not be that significant as the government has also banned imports of second-hand clothes and shoes as well as poultry and other processed products which the informal sector was mainly trading in.”
Budget deficit
Finance Minister Patrick Chinamasa said last month that Zimbabwe was faced with a $400 million (R5.18 billion) budget deficit after he cut revenue estimates for the current year from $3.99bn to $3.6bn.
Slowing productivity had forced Chinamasa, who highlighted “deceleration in overall economic growth” in his mid-term budget review, to halve the country’s economic growth forecast for this year from 3.2 percent to 1.5 percent.
The World Bank said economic growth would be a lowly 1 percent this year and now headwinds from fluctuations in major trade partners – China and South Africa – was set to worsen the country’s plight.
The currency weakness in China and South Africa could force central banks in the region to tighten monetary policies, a luxury Zimbabwe cannot afford as it does not have its own currency, leaving it with no control over currency movements and susceptible to further economic weakness.
Business Report