Zimbabwe: Price stablisation strategy for de-dollarising without external support

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The role of money in the growth of any nation is undisputable. Its usefulness as a medium of exchange, unit of account and store of value is unquestionable. However, all these depends on its stability, that is, the certainty of its future purchasing power.

By Roand Puwai

Thus, it can be stated as a fact that the public’s money holdings are an increasing function of price stability or stated otherwise, a decreasing function of inflation. This means people are inclined to hold more money, the more certain they are to buy the same things they are buying currently at the same price in the future.

Price stability therefore encourages the use of domestic currency and results in positive externalities in the form of reduced uncertainty thus providing a secure and healthy business climate in which investors are willing to invest.

Zimbabwe’s Current Situation

The post dollarization period has seen the economy sliding back to highly inflationary environment. This is despite the government efforts through both the fiscal and monetary policy focusing on stabilizing the economy.

Prices has been following the depreciation of the local currency on the black market which has depreciated from 1: 3 to 1: 85 in a period of 12 months. Most prices in the market are a conversion of the US$ prices by the black market rate of the day or a slightly higher rate to hedge oneself against any changes.

Current Interventions and Their Shortfalls

·      Monetary Targeting -strategy works with a floating exchange rate


·     Statutory Instruments





-lack of capacity to enforce the laws due to the highly informalization of the economy

-despite laws saying prices should be in ZW$, most prices in the informal sector are in US$ and are only converted to the local currency at the prevailing black market rate

·        Transactional Limits



-the limits on transactions increases the transactional cost which will translate to higher exchange rates


·        Budgetary Surplus -savings mainly emanating from low salaries of civil servants

-reduced real income for civil servants who accounts for more than half the workforce in the country thus reduces aggregate demand in the economy

Setting Out
1st Year
The objective is to stabilize prices

  • Dump the monetary targeting strategy and adopt the exchange rate anchor
    • Peg the rate at US$1:ZW$40 and back this with US$1bn reserve
    • Cap domestic money supply to 40bn, meaning 100% reserve backing of the local currency
    • New money to be printed only if the reserves increases, that is, when there is a need for the Central Bank to mop up excess dollars on the market
  • Remove the fuel subsidy
    • All service stations to sell fuel in US$
    • Only companies and public transport to get it on the US$ equivalent
  • Remove the electricity subsidy
    • Electricity to be sold ZW$ equivalence of the cost of importing it plus the cost of distributing it
    • Mines and exporting companies to pay it in forex
  • Change in exchange controls policy
    • Exporters to retain 100% of their export receipts
    • No withdrawal of forex in banks except for remittances
  • Negotiate a social contract with business and labour
    • Civil servants salaries to be pegged at ZW$4000 which is equivalent to US$100
    • A government budget of ZW$75bn with 35% salaries and 25% capital budgeting
    • Targeting a zero budget deficit, any surplus to be used to build treasury forex reserves
    • Reduction in our foreign missions

2nd Year

The objective is productivity improvement in mining and agriculture

  • Introduce MAPIPI, that is, Mining and Agricultural Productivity Improvement Policy Initiative
    • Incentivize gold production by buying Gold at US$50 per gram for those delivering 1000kgs and above in a year to Fidelity
    • For other minerals companies to be allowed to import latest machinery duty free
    • In agriculture, maize; soya beans; tobacco and cotton to be targeted
      • Capacitation of extension workers
      • Introduce produce based repayment loans, that is, loans repaid in the form of an agreed tonnage per hectare
      • DDF to own tractors and combined harvesters to be hired out to farmers
      • Capitalization of fertilizer making companies
    • Re-opening of Zisco Steel.
      • To be a public cooperation listed on the Zimbabwe Stock Exchange
  • Maintain a balanced budget
    • Budget to increase to ZW$100bn, on the assumption of increased revenue
    • Civil servants salaries to increase to ZW$6000
    • Maintain a 25% capital budget
  • De-dollarization of the fuel market
    • Fuel prices to be in ZW$

3rd Year

The objective is improved manufacturing capacity utilization and productivity improvement

  • Improve capacity utilization in manufacturing
    • Engage external private lenders for borrowing from the domestic private sector
    • Prioritize allocation of foreign currency
  • Improve productivity in the manufacturing sector
    • Duty free importation of latest technologies in manufacturing
    • Co-funding of research and development initiatives by the government and the private sector
  • Reforming NSSA
    • Investment to be directed to low cost housing projects and shopping malls in rural districts
    • Local companies to be awarded with the construction tenders
  • National Road Network Improvement
    • ZINARA to target 100km surfacing of roads per every rural province per year
    • Contracts to be awarded to local companies
  • Resuscitate rail transporting
    • Privatize NRZ by listing it on the Zimbabwe Stock Exchange
  • Monetary Policy
    • Move to a managed float
    • Make use of the inflation targeting strategy to stabilize prices