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Zimbabwe prices likely to remain high unless government avails forex

Zimbabwe’s price increase puzzle will remain unresolved until government restores normalcy on the currency market that has multiple exchange rates and addresses the dollar note shortage, experts say.

The prices of basic commodities have been rising in the southern African country over the past six months as shortages of hard currency deepened.

Zimbabwe replaced its worthless dollar with mainly the US dollar in 2009 but the economy has struggled over the last 24 months because of a massive domestic shortage of greenbacks.

In response to the crisis, last year Zimbabwe launched a surrogate currency, paper ‘bond notes,’ or ‘bollars’ which designed to ease acute shortages of hard currency backed by a $200 million loan from the African Export Import Bank.

The government’s voracious appetite for cash under former president Robert Mugabe – with no filip in either aid, credit or Foreign Direct Investment — also saw the central bank creating dollar surrogates in the electronic banking system on a far grander scale by extended use of Treasury Bills and the real time gross settlement (RTGS) system.

This money lacks the backing of sufficient currency reserves or gold – the prerequisite of any stable unit, with economists nicknaming the electronic dollars, “zollars.”

With little room to maneuver, the new administration of Emmerson Mnangagwa has pinned its hopes on achieving legitimacy at next year’s elections, which along with sharp reforms, will attract foreign credit and improved FDI inflows to solving the currency puzzle.

Meanwhile Zimbabwe’s use of USD, bollars (bond notes), zollars (RTGS), mobile money transfers has resulted in exchange rate disparities in the parallel market, the remaining source of hard currency. The greenback attracts a premium of 75 percent on the market.

Prices of food products as well as appliances rose by over 300 percent since September, with meats and bakery products causing a public outcry.

When he presented his state of the nation address last Wednesday, President Mnangagwa said price increases “raise the appeal of cheaper imports ,which has the effect of undermining current efforts to develop the local industry”.

Confederation of Zimbabwe Industries president Sifelani Jabangwe says that meats price increase was driven by avian influenza.

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