Zimbabwe braces for challenging 2024 as economy struggles
In what seems to be a recurring theme for Zimbabwe, market analysts are predicting a gloomy outlook for 2024. The country is grappling with a galloping exchange rate, steep taxation, and a faltering economy, which is taking a toll on ordinary citizens and eroding their disposable incomes. The widening gap between the official and parallel market exchange rates is exacerbating the situation, creating market turbulence.
While 2023 provided a brief respite with some exchange rate stability in the first half, experts had warned that it was a temporary and managed situation. Unfortunately, their concerns are proving to be true as the exchange rate started rising again in the third quarter of 2023, gaining momentum fuelled by new government tax measures. Currently, the Zimdollar’s massive depreciation on the parallel market has resulted in a staggering percentage difference of over 130% between the official and parallel market exchange rates (US$1:ZWL$13,000), while the formal exchange rate remains stagnant at around ZWL$7,000.
This discrepancy far exceeds the globally accepted threshold of 20% for currency stability. Economists argue that the exchange rate issue reflects deeper problems in an economy suffering from a failed monetary framework. The Hanke index, which measures inflation, indicates that Zimbabwe continues to have the highest inflation rate in the world, surpassing 900%. Furthermore, the country is struggling to meet its minimum output requirements for maize grains, exacerbating food security concerns.
Chenaimoyo Mutambarasere, a development economist, highlights the failure to address the underlying issues and implement necessary changes.
“According to the Hanke index, Zimbabwe continues to have the worst inflation in the world which he measures as being above 900%,” a development economist Chenaimoyo Mutambarasere said.
“Exchange rate is nearly 1:10 000 and our budget statement measures the value of the economy in trillions of local currency. We have failed to produce our required minimum output for maize grains ahead of the predicted drought season in the first quarter of last year.
“The economy is still suffering from a failed monetary framework. There have been no attempts to change anything. Calls to dollarise have been ignored and the ambiguity on the de-dollarisation programme continues to increase the country’s risk profile,” Mutambarasere told NewsDay.
Enock Rukarwa, an investment analyst, expresses concern about the escalating cost of living. As the local currency depreciates against the US dollar, the prices of goods and services soar, reducing consumer purchasing power.
“It’s worrying that the parity between the formal exchange rate and alternative exchange rate continues to widen. As the local currency continues to depreciate against the US dollar, the cost of living scales up on the Zimdollar incomes,” he said.
“The most direct impact is an increase in the prices of goods and services which ultimately leads to reduction in consumer purchasing power.”
As Zimbabwe braces for another challenging year, it is essential for the government to take decisive action to stabilize the currency, control inflation, and implement measures that promote economic growth. The well-being of ordinary citizens depends on effective policies that address these pressing issues and create an environment conducive to investment and development.
