11 May 2022
On 7 May 2022, President Emmerson Mnangagwa held a press conference announcing a raft of measures supposedly to reign in the free fall of the Zimbabwean dollar as well as stabilise the economy. The following is our response to these measures.
The macroeconomic environment remains very challenging for the workers with annual inflation on upward trajectory since the beginning of the year. Annual inflation rose from 60.61% in January 2022 to 66.1% in February, then 72.7% in March and 96.4% by April 2022. Zimbabwe has the highest annual inflation in SADC and the second highest in Africa (after Sudan which has an annual inflation rate of 263.2% as at March 2022). Ordinary workers have borne a disproportionate brunt from this chronic high inflationary trend with the nominal average monthly wages (which are already below the Poverty Datum Line) being massively eroded. The major drivers of the chronic high inflation are the unsustainable increase in broad money supply, the widening black-market premium and the commodity price shocks induced by the war in Ukraine. The increase in broad money supply has been unsustainable and has had a destabilising effect on the economy, while on the other hand the distortions in the foreign exchange management system have led to the widening of the black-market premium. The chronic high inflation has weakened the little confidence and trust by economic agents in the local currency, and has further increased the demand for foreign currency as a medium of exchange and a store of value to mitigate against the loss in value of the local currency.
Review of the Measures
While the ZCTU applauds the President for opening up the transport sector (which was one of our Workers day demands to the government), we are concerned about the nocturnal announcement of these measures without any social dialogue which goes against the letter and spirit of the Tripartite Negotiating Forum (TNF). The ZCTU is also concerned that some of these measures might further weaken the already weak confidence and trust in the local currency and economy in general thereby threatening the few remaining formal sector jobs.
1. Restoration of lost value on bank deposits
While this is a positive development which was overdue, on its own it will not do much to restore the battered confidence and trust in the local economy, and might be overridden by the imposition of tax on local foreign currency transactions as well as the imposition of a foreign currency withdrawal levy which will weaken formal sector financial intermediation. Restoration of confidence requires the implementation of institutional and macroeconomic reforms that address the market distortions that have created a fertile breeding ground for non-productive rent-seeking and speculative informal economic activities.
2. Clearance of foreign auction backlog
While the Government claims to be currently sitting on reserves in excess of US$ 1 billion which could potentially be used to clear the foreign currency auction backlog, this will likely be quickly depleted especially given the fact that the aggregate demand for foreign exchange in the economy per month averages about US$600-700 million (this is based on average monthly imports with the auction allotting on average about US$200 million (in April 2022 total allotments were US$126 million; in March 2022 total allotments were US$184.1 million; in February 2022 total allotments were US$149 million; while in January 2022, total allotments were US$69.7 million), creating a huge mismatch.
3. Continuation of partial dollarisation (dual currency system)
The ZCTU believe that any de-dollarisation process, exchange rate management and any measures to strengthen the demand for local currency, including tax incentives for using the local currency will not work at the moment. As a labour body we reiterate our position that for the time being, the solution to problems and the only inescapable solution is for the government to abandon the local currency and resort to United States dollars until all the economic fundamentals are in place for the re-introduction of the Zimbabwean dollar. All employers should pay a living wage and other benefits in United States Dollars.
4. Foreign currency cash withdrawal levy
This measure will discourage economic agents from using the formal banking sector which will further exacerbate the already high level of informality in the economy.
5. Settlement of foreign currency tax obligations in local currency
This measure will result in an increase in broad money supply growth in the economy which could further stoke up inflationary pressures in general.
6. Suspension of third-party country payment on foreign payments
This is positive, as it will help to forestall leakages.
7. Suspension of lending by banks
Lending by the banking sector is critical for sustainable economic growth and development in any economy. Suspension of lending by banks will weaken the productive capacity of the economy (as most businesses have been relying on bank credit to finance their working capital and other productive requirements) while also affecting banking sector profitability which could potentially affect jobs.
The ZCTU reiterates its demand for payment of wages and salaries in USD as the economy is dictating. We also call for all the social partners to come together under the aegis of the TNF to address the macroeconomic and development challenges our economy has been facing in an inclusive and sustainable manner while leaving no one behind.