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Zimbabwean Businesses Abandon Local Currency for US Dollars
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As Zimbabwe’s economy struggles and the country faces scarce fuel supplies, some businesses are refusing to accept the ever-weakening local currency, insisting on doing business in U.S. dollars.

One reason is that the local currency, known as bond notes, are not accepted outside the southern African country, making them useless for any companies that need to import goods.

Spare vehicle parts seller Tongai Madamombe says he wants President Emmerson Mnangagwa’s government to switch to the U.S. dollar, as pricing in Zimbabwe’s local currency bond-notes has become difficult for importers, in Harare, May 31, 2019.
Spare vehicle parts seller Tongai Madamombe says he wants President Emmerson Mnangagwa’s government to switch to the U.S. dollar, as pricing in Zimbabwe’s local currency bond-notes has become difficult for importers, in Harare, May 31, 2019.

“For those that do not import, charging in bond-notes is not as difficult, as it is for us who import,” Madamombe said. “If you do not calculate well, you will fail to restock. We are really in difficult times. So we are now pricing in U.S. dollars, those who do not have it we use parallel market rates, as we will go there to get foreign currency to import our stock.”

Zimbabwe abandoned its dollar more than a decade ago, when hyperinflation made it worthless. Now the bond notes, introduced two years ago, are also depreciating in value.

The South African rand and British pounds are acceptable in many places, but very hard to find.

Even some Zimbabwe government departments and companies such as the National Railways have started asking for payment in U.S. dollars, partly to protect themselves against the depreciating bond notes.

Fuel is another scarce product in Zimbabwe, and the government continues to control its price. Some companies have resorted to selling it in U.S. dollars only.

Eddington Mazambani, the head of the Zimbabwe Energy Regulatory Authority, says his organization is only allowing fuel companies that have directly imported fuel on their own to trade in U.S. dollars, in Harare, May 31, 2019.
Eddington Mazambani, the head of the Zimbabwe Energy Regulatory Authority, says his organization is only allowing fuel companies that have directly imported fuel on their own to trade in U.S. dollars, in Harare, May 31, 2019.

Eddington Mazambani, the head of the Zimbabwe Energy Regulatory Authority, says it is only allowing fuel companies that have directly imported fuel on their own to trade in U.S. dollars, as the Reserve Bank of Zimbabwe pays foreign currency for most fuel imports in the country.

“We require documentation, if you have procured through Reserve Bank [and] you then fail to produce documentation to us, we will then take the necessary measures. You would be breaking the law, so we will take measures according to the laws in the petroleum sector,” Mazambani said.

The government says gas stations trading in U.S. dollars when they are supposed to take local currency are being stripped of their licenses. But so far that policy has not made fuel more available or stopped the practice.

Christine Lagarde

The International Monetary Fund (IMF) has approved a one-year Staff-Monitored Program (SMP) for Zimbabwe designed to support the Zimbabwe government’s reform agenda, including the so-called Transitional Stabilization Program tailor-made to address structural rigidities in the economy while also taking key steps to address the macroeconomic imbalances.

In a statement, the IMF said it is aware that Zimbabwe faces deep macroeconomic imbalances, adding that President Emmerson Mnangagwa’s government “is committed in addressing the macroeconomic imbalances, removing structural distortions to facilitate a resumption in growth, and to re-engaging with the international community including by clearing its external arrears.

“The authorities have elaborated a comprehensive structural reform program—the Transitional Stabilization Program—to address structural rigidities in the economy while also taking key steps to address the macroeconomic imbalances by halting the issuance of quasi-currency instruments to finance the deficit (since September 2018) and introducing a new domestic currency in February 2019.”

The IMF said the SMP is designed to support the authorities’ reform agenda. “The SMP will be monitored on a quarterly basis, and is intended to assist the authorities in building a track record of implementation of a coherent set of economic and social policies that can facilitate a return to macroeconomic stability and assist in reengagement with the international community.”

Economic policies under the SMP emphasize the restoration of macroeconomic and financial sector stability through: implementing a large fiscal adjustment, the elimination of central bank financing of the fiscal deficit, and adoption of reforms to allow the effective functioning of market-based foreign exchange and debt markets.

Structural reforms include steps to reform and privatize state owned enterprises, enhance governance including in procurement and revenue administration, and to improve the business environment. The SMP also includes important safeguards to protect the country’s most vulnerable people.

The IMF said, “Risks to the SMP are high, including due to the materialization of two external shocks - the El Niño related drought impacting both agricultural production and electricity supply as well as the extensive damage caused by Cyclone Idai in March. The impact of these two shocks complicate an already difficult near-term economic outlook as the economy adjusts to the new policy regime. To mitigate the potential risks from capacity constraints, the IMF will support the authorities’ efforts in all policy areas covered by the SMP through tailored technical assistance.”

According to the IMF, after moving to full dollarization in late 2008 to break a period of hyperinflation, Zimbabwe’s fiscal deficits increased substantially during 2016–18, financed by the issuance of quasi-currency instruments nominally at par to the US dollar and the continued accumulation of external arrears.

The IMF said the fragile equilibrium was maintained through exchange controls and other restrictions on access to foreign exchange, providing a deep distortion for economic activity.

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