In a bid to bolster the value of the local currency and control rising consumer inflation, Zimbabwe’s treasury has introduced measures aimed at promoting the use of the Zimbabwean dollar over the US dollar.
As part of the measures, the government has directed all its departments to collect fees in the local currency. Additionally, a 1% tax will be imposed on all foreign payments, while customs duty will be payable in the local currency, except for specified luxury goods or cases where importers choose to pay in foreign currency.
Furthermore, Finance Minister Mthuli Ncube announced that the Treasury will assume all foreign currency debts from the Reserve Bank of Zimbabwe. In a statement dated May 29, Ncube outlined the government’s plan to create a debt redemption fund to address external liabilities through levies and other resource mobilization initiatives.
Zimbabwe adopted the use of foreign currencies for domestic transactions in 2020, shortly after abandoning dollarization. Economists estimate that around 80% of the country’s economy is dollarized.
According to Ncube’s statement, the assumption of external obligations by the Treasury and the implementation of non-inflationary financing for these liabilities, along with resource mobilization efforts, are intended to curb the growth of money supply, mitigate exchange rate depreciation, and reduce price increases.
However, some economists express doubts regarding the effectiveness of the new measures in stabilizing the Zimbabwean dollar. The local currency has already weakened by approximately 70% since the beginning of the year, and the gap between the official and exchange rates continues to widen.
Economics professor Gift Mugano criticized the government’s approach, comparing it to using toothpaste when one has lost their teeth. Mugano expressed skepticism about the prospects of reversing the depreciation and ensuring stability for the Zimbabwean dollar.
Mugano also raised concerns about the government’s plan to liquidate unutilized export proceeds onto the interbank market, describing it as a “raid” on exporters’ foreign currency accounts. Minister Ncube had stated that export earnings remaining unused after 90 days would be subject to liquidation.
The implementation of these measures by the Zimbabwean Treasury reflects the government’s efforts to strengthen the local currency and manage inflation. However, their effectiveness in achieving the desired outcomes remains a subject of debate among economists and analysts.
