Some half a year after the election of President Emmerson Mnangagwa, a process accompanied by deadly state violence and charges of manipulation against Mnangagwa’s ruling party, Zimbabwe’s dollar-dependent economy is buckling under a disastrous shortage of foreign currency. With the government unable to provide enough U.S. dollars to satisfy the demand for imported goods, the prices of those goods are skyrocketing and the country is suffering shortages in industries dependent on foreign imports.
Drastic Measures to Address a Dollar Deficit
Among those imported products is fuel, which has become increasingly scarce over the course of the past several month as Zimbabwe’s economic situation becomes more and more dire. Long lines at gas stations have become the status quo across the country as uncertain citizens wait for the government to begin to implement a solution. On Saturday night, President Mnangagwa addressed the nation for the first time on the subject and announced that his government was raising the price of gasoline at the pump by 150 percent.
“With effect from midnight tonight, a fuel pump price of 3.11 dollars per liter for diesel and 3.31 dollars per liter for petrol will come into effect,” he said from the State House in Harare, the country’s capital. “These prices are predicated on the ruling official exchange rate of one to one between the [Zimbabwean] bond note and the US dollar and also on the need to keep fuel retailers viable.” Those prices are an increase from 1.38 dollars and 1.43 dollars, respectively.
Exempt from the increases are members of foreign embassies and tourists able to pay in U.S. dollars, the official currency of government transactions in the country.
In his announcement, Mnangagwa warned business that his government would crack down on efforts to raise the price of other goods in response to the higher cost of gas — an otherwise to be expected economic consequence of a sudden increase in the cost of transportation. In an effort to promote price stability, he said his government “has decided to grant a rebate to all registered businesses in manufacturing, mining, commerce, agriculture, and transport sectors.” Just how much that rebate will be, however, remains to be seen, as the president said that details on the plan were yet to come.
Prices have been multiplying across the board for months, however, in a country stunted by decades of dictatorship under Robert Mugabe that saw little outside investment. Mnangagwa, a former official in Mugabe’s government who ousted the ailing ruling in a 2017 military coup following a power struggle with Mugabe’s wife, Grace, campaigned in his first election last year on the promise of economic growth and renewed foreign investment. Mnangagwa described a Zimbabwe newly “open for business” under his leadership, a promise that has yet to come to fruition.
“I’ve met with many on our worsening situation and unbearable suffering,” opposition candidate Nelson Chamisa wrote on Twitter last week. Chamisa, whose supporters consider Mnangagwa to be a fraud who stole the election, has himself repeatedly rejected Mnangagwa as the president and remains a powerful political figure in the wake of Mnangagwa’s victory and the mass arrest of prominent opposition members. “The back-to-school burden, high-prices, non-performing economy, joblessness and worthless salaries bring sorrow.” The presidential candidate called for an “urgent dialogue on our politics & economics.”
Promises of a New Currency
In an effort to develop a long-term solution to the crisis, Finance Minister Mthuli Ncube announced that the government would begin printing a new local currency within the next year, a radical step that, by the government’s own standard’s, could be dangerously premature. The Zimbabwean dollar was officially demonetized in 2009, after reaching inflation rates as high as 500 billion percent.
The announcement by Ncube came as opposed to the alternate options of doubling down on the U.S. dollar or the South African rand as the official currencies, both of which are already widely used.
“I also hear that the citizens are pushing towards adopting the rand, I even argued for it years ago and there was a reason, you know, if we are going to assume the rand as our currency we first of all have to acquire the rand and we need U.S. dollars first to purchase the rand,” he said.
“On the issue of raising enough foreign currency to introduce the new currency, we are on our way already,” he said at a town hall meeting. “Give us months, not years.”
According to Reuters, the Zimbabwean government currently has two weeks’ reserves of foreign currency to pay for scheduled imports. Officials have said in the past that the government would not begin printing its own currency until it had six months worth of reserves.
There is a dangerously low amount of hard cash in the country, however. With some 10 billion dollars of electronic funds in Zimbabwe bank accounts, the central bank estimates that there is only 400 million dollars in cash circulating. Desperate to stay in business and weather the economic disaster, industries have turned to the black market in search of U.S. dollars, paying premiums as high as 370 percent.
“In the long term, Zimbabwe needs its own currency,” said Ncube. “Our job is to introduce a currency that will be stable and less volatile. Dealing with the fiscal side in the first order to move towards a stable currency, after all what we have now is fiscal policy and not monetary policy and we have to tighten the belt on the current volatility.”
What that means, in effect, he said, is that the government is bent on detaching the economy from its complete dependence on foreign currency. Of course, as it well admits, the first thing it has to do is raise enough of that currency to launch its own Zimbabwe dollar once again, and hopefully prevent a repeat of its the crisis of the last decade. Confidence in the government, however, is shaky at best after the violent and highly dubious elections in which Mnangagwa secured his position as head of state. The survival of his administration which was itself initially brought to power by the military may very well depend on the success of its program for economic recovery.