Mishma Chakanyuka, Staff Writer 
A LACK of macroeconomic stability and policy credibility are Zimbabwe’s biggest hurdles in its de-dollarisation plan, a local research firm says.
The southern African country reintroduced its currency in 2019 after a decade of dollarisation, but the local unit has depreciated sharply against the US dollar due to low confidence.
The country has been fast dollarising with statistics from the Zimbabwe Statistics Agency revealing that 78 percent of transactions for food and goods purchases are now being done in foreign currency while 70 percent of the government’s domestic expenditure is in US dollars.
Economists have however warned of an increased risk of major revenue loss owing to the growing use of the US dollar as the Zimbabwean economy moves towards “full re-dollarisation”.
“In February and March 2023, the ZW$ lost 9,09 percent and 25 percent against the US$ on the parallel market and ZWL$ prices responded accordingly.
“One can attribute this to election spending and government payments to its contractors and suppliers,” Akribos said in its first quarter report.
According to Akribos, the country lacks enough foreign currency reserves to back up its local currency, as such reducing the parallel market premium and establishing an equilibrium exchange rate is likely to be difficult using export retentions.
“To regain confidence in the central bank, reducing or removing any political or institutional constraints that hinder policy consistency will help create a good track record that boosts the credibility of the monetary policy over time.
” Its policies also need to be sequential and carried out at the right time to avoid sending opposing signals to the market,” Akribos said in its first quarter report.
Industry has previously said authorities should put in place policies that restore value and confidence in the Zimbabwe dollar, warning that the increased use of the greenback will affect the future use of the domestic currency.
Evidence from the past shows that the central bank and treasury become reactive to activities that would have already taken place in the economy instead of setting the economic agenda and their response in most cases have delivered many unintended negative results and made the problems worse.
Akribos said in Zimbabwe, de-dollarisation is often misinterpreted by economic participants as it is perceived as the return of the local currency as the sole legal tender, refreshing the institutional memory of hyperinflation, company bankruptcy and poverty which ends up encouraging dollarisation in the economy.
“This is in tandem with the saying that one who has been bitten by a snake living in fear of worms,” read the report.
In the southern African country, whenever the money supply increases the parallel exchange rate depreciates and the prices of goods and services increase proportionately.
“In nearly every economy, the relationship between money supply growth and nominal prices (exchange rate) is almost always 1:1.
“The difference lies in the fact that in other nations, particularly those with anchored inflation expectations, the 1:1 relationship occurs in the long run.
“In Zimbabwe, there seems to be no difference between the short run and long run due to inflation expectations and speculative behaviour fueled by uncertainty (low public confidence).
“As a result, whenever the parallel exchange rate depreciates all price changes occur simultaneously,” read the report.
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