The Reserve Bank of Zimbabwe's continued tight monetary stance which has largely squeezed out local currency risks full re-dollarisation of the economy, analysts have warned.
Several businesses are now preferring to transact in US dollars to protect their balance sheets, with even civil servants earning the bulk of their salaries in foreign currency.
Imara Capital Zimbabwe in its Zimbabwe Investment notes said authorities’ clampdown on Zimbabwe dollar payments has inadvertently accelerated dollarisation. It said:
“We have spent the past weeks speaking with many executives from both the private and the listed space. Two large food manufacturers we met have seen their US dollar revenues rise from around 35% of sales earlier in 2022 to over 70% since August 2022.
Furthermore, the formal retailers have found it difficult to pay them so products have been directed to the US dollar cash economy and hence physical cash intake has risen.”
Last year, the RBZ introduced gold coins that are reported to have mopped up excess ZWL liquidity in the market. It also introduced minimum lending rates of 200% and 100% for corporates and individuals respectively, among other measures that have curtailed credit expansion.
Economist, Eddie Cross, said restricting the availability of the Zimbabwe dollar “could force dollarisation”.
Another economic commentator, Gift Mugano, said the high interest rates of 200% means businesses would be paying three times the principal amount. He said:
There is no business that makes such margins, which can guarantee that kind of return that will give a business the capacity to pay back.
Mugano also said businesses have already taken positions to convert their ZWL loans into US dollar loans, and this will result in the creation of artificial US dollars. He said:
What it does is, we have new risks arising from that such as competitiveness challenges, the creation of artificial US dollars because when these loans are restructured into US dollar loans and new notes are given out, banks are charging interest rates and bank charges.
