Mishma Chakanyuka, Staff Writer 
THE Confederation of Zimbabwe Industries (CZI) has urged the government to be wary of inadvertently forcing full dollarisation through its tight squeeze on Zimdollar liquidity.The local currency’s accelerated depreciation in the first half of 2023 prompted strong measures from the government that included a tight monetary policy.
“Although the measures managed to enhance stability, the economy has become more dollarised due to the liquidity squeeze on the Zimdollar,” CZI said in a recent note.
Kurai Matsheza, CZI president
“It is now imperative for the government to determine the optimal Zimdollar liquidity that is enough to prevent the economy from full dollarisation by default,” the business-member organisation said.
The central bank says foreign currency deposits constituted 80 percent of total deposits at the end of June, while foreign currency-denominated loans constituted 94 percent of all bank lending in the country.
President Emmerson Mnangagwa has said his government will push for the use of the domestic currency, which he believes to be the basis for sustainable economic growth.
“The past five years have delivered valuable lessons on our intricate economy, especially the fact that a national currency that is supported by a vibrant productive sector is indispensable to sustainable development… no country has ever developed without its own currency,” he said at his inauguration on Monday.
Veteran economist Eddie Cross says Mnangagwa would have failed if the Zimdollar is not the sole legal tender at the end of his second five-year term.
“It has to happen,” Cross said in an interview with Group Editor-In-Chief Guthrie Munyuki on his popular news and current affairs programme on independent commercial television station 3Ktv’s Vantage programme last Thursday.
“In my view, the conditions now exist for us to have a strong domestic currency and to eventually move towards a deep dollarised environment.
“We have our own currency, we de-monetise the foreign currency, and I think we are going there.”
Meanwhile, CZI says the economy is now in deflation following measures implemented by the government to tame inflation.
Month-on-month inflation remained in negative territory at -6,2 percent, having gained about 9,1 percentage points on the July 2023 rate of -15,3 percent.
Eddie Cross Cross is a former member of Parliament and a member of the RBZ’s Monetary Policy Committee.
The annual blended inflation rate decreased from 101,3 percent in July 2023 to 77,2 percent in August 2023, shedding 24,1 percentage points.
“The continued decline in annual blended inflation is largely a reflection of the fact that tight money supply and prudent fiscal spending are critical in taming inflation,” CZI said.
CZI noted that if there is no sudden injection of liquidity into the market, the month-on-month inflation figures for September 2023 will likely continue to be in negative territory.
The largest industry body said the revised annual inflation projections from 10 percent to 30 percent to 60 percent to 70 percent by the end of the year 2023 are more realistic, and they can be achieved if the authorities stay the course.
“What is of paramount importance now is exchange rate stability rooted in the convergence of the parallel market and the official rate, which would give an assurance of sustainable stability.”
CZI insists that the Zimdollar inflation figures are critical for businesses to make informed decisions since economic agents use both currencies and not a blended currency. Based on the CZI model, the Zimdollar month-on-month inflation rate for August 2023 was about -8 percent with the decline in prices being attributed to the acute shortage of the local currency on the market, which resulted in the appreciation of the exchange rate.
The organisation estimated the annual Zimdollar inflation rate for August 2023 at 220,4 percent, having declined for two consecutive months from a peak of about 360 percent in June 2023.
CZI noted that the producer price index, which measures the rate of change in prices of products sold as they leave the producer, decreased from 104 percent in June 2023 to -21,8 percent in July 2022, shedding 125,8 percent points.
“Producers severely reduced prices in July 2023 in line with the policy measures that were prescribed by the policymakers.
“The appreciation of the local currency on the official market and the parallel market meant that producers could revise prices downwards. This cements the notion that changes in prices in Zimbabwe are largely influenced by the policy environment,” CZI added.
The decline in producer prices trickled down to consumers who enjoyed price reductions in retail and wholesale shops as evidenced by the decline in the consumer price index.
