Oliver Kazunga, Senior Business Reporter
ZIMBABWE needs to increase production levels and domestic savings to attain currency stability so as to restore market confidence and tame inflationary pressures which have resulted in erosion of consumers’ earnings.
Economist and Zisco acting board chairperson, Dr Gift Mugano said this yesterday in Bulawayo where he addressed a tax seminar, which also sought to unpack the 2020 national budget. The seminar was organised by BDO Chartered Accountants. Dr Mugano noted that the economy still has a high appetite for the US-dollar as businesses and individuals seek to hedge themselves against loss of value for money. He said while this was a reality in view of weakening local currency, dollarisation was not the complete answer as it has its own shortcomings.
“The issue of dollarisation does not give us guarantee that once we dollarise things are going to work. What will only happen is that it will give a reprieve in terms of inflation because naturally inflation in US dollars becomes a single digit if not deflation when there is correction mechanism of the prices. It will also give a bit of some stability in terms of the earnings. Our root cause is production and the issue of confidence,” said Dr Mugano.
Government abolished the decade-long US-dollar dominated multi-currency system through Statutory Instrument 142 of 2019 in June this year. This was after the realisation that some individuals and businesses were externalising the US dollar among other uncouth financial practices. The market was choosing to price a number of goods and services in US dollars when the majority of citizens earned the local RTGS or bond note.
Dr Mugano said although reverting to dollarisation will address the existing inflationary pressures, it will not address all the macro-economic challenges facing the country.
He said when the country adopted a multicurrency system the greenback went into thin air because Zimbabwe was not printing it.
“We assumed that adopting a currency would change everything that’s why even talk of the South African rand is baseless if we don’t address production.
“Production requires all the systems to be in place for us to be a productive economy,” said Dr Mugano.
He said the country has to ensure there is guaranteed power supply all the time.
“How can you be productive when you have no Zesa for 18 hours, no water and then you need to have savings.”
Dr Mugano said having domestic savings was critical in creating enabling environment for economic growth. Under dollarisation Zimbabwe has been struggling to stimulate production levels to competitive levels largely due to shortage of foreign currency, power constraints and stiff competition from cheap imports.— @okazunga.