Gold deliveries declined by 41 percent in October 2018 and by December 2018 were 48 percent below the average deliveries prior to October 2018.
THE decline in gold deliveries during the last quarter of 2018 dragged down Zimbabwe’s economic growth, a leading equities firm has said. This is premium content. Subscribe to read article.
In an analysis of the monetary policy statement presented by Reserve Bank of Zimbabwe governor John Mangudya last week, Old Mutual Securities (OMSEC) said the decline in deliveries between October and December due to the unsustainable fixed exchange rate was a major factor in the slowdown.
“We believe that the performance of the economy could have been better had it not been for the significant decline in gold deliveries in the last quarter of 2018 due to the currency distortions that arose from the formal separation of RTGS balances and hard currencies in October 2018,” said OMSEC.
The gross domestic product growth rate for Zimbabwe for 2018 was estimated at four percent in 2018 and is forecast to grow by 3,1 percent in 2019, 30 basis points lower than the SADC region’s average of 3,4 percent. The lower growth rate is premised on austerity measures.
“Notwithstanding these challenges, the performance of the mining sector reached an all-time high in terms of gold deliveries, which reached 33,2 tonnes, with 21,7 tonnes accounted for by small scale miners,” said OMSEC.
In his statement, Mangudya said floating the exchange rate will eliminate the dictation of prices in the economy by parallel market rates, which had seen inflation rising to 56,9 percent in January 2019.
The unsustainable fixed peg exchange rate between the RTGS dollars and hard currencies had resulted in significant operational challenges for key sectors of production in Zimbabwe.
OMSEC said significant cost increases in agricultural inputs, unattractiveness of the local currency component being paid to small-scale gold producers and the lack of viability of sections of industry due to foreign currency supply bottlenecks were becoming increasingly unmanageable.
For instance, gold deliveries declined by 41 percent in October 2018 and by December 2018 were 48 percent below the average deliveries prior to October 2018,” said OMSEC.
Annual inflation in October 2018 rose to 20,86 percent and to 42,09 percent by December 2018. This was largely underpinned by goods with a huge foreign currency component cost that was sourced from the parallel market at about four Real Time Gross Settlement dollars per US dollar compared to the official exchange rate of 1:1.
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