Zimbabwe’s inflation rose to a new 10-year high of 59.39 per cent year-on-year in February from 56.9 per cent in January, the statistics agency Zimstats said on Friday.
 
Zimstats said in Harare that the inflation was pushed by increases in the price of basic goods.
 
On a monthly basis, prices increased by 1.67 per cent in February, compared to 10.75 per cent in the previous month.
 
Zimbabwe’s Central Bank Governor, John Mangudya had said on Monday that annual inflation rate should fall to between 10 and 15 per cent by the end of the year.
 
However, economists said the figure could be higher due to price pressures from the exchange rate and a drought.
Zimbabwe’s currency devaluation last week has led to a more realistic exchange rate, yet thin trading implies the new official interbank market isn’t as free as officials suggested.
 
The central bank announced on Feb. 20 that its quasi-currencies -- bond notes and their electronic equivalent -- would no longer be valued at parity to the dollar and would be traded on an official interbank market.
 
Since then, the bond notes, now known as RTGS dollars, have weakened to 2.5 against the greenback, while the black market rate has appreciated almost 9 percent to 3.36 per dollar, according to marketwatch.co.zw, a website run by financial analysts in Harare. The tight trading band on the interbank market -- rates have ranged between 2.5001 to 2.5042 this week -- indicates trading isn’t totally free. The RBZ seems to be the only supplier of dollars, with just $7.7 million traded as of Thursday, a person familiar with the matter said.
 
The gap between Zimbabwe's formal and parallel FX rates is still wide
 
There’s also been some improvement, again modest, with equities.
 
The dollar squeeze roiled the stock market, with locals piling into it to hedge against inflation, which is officially 57 percent but may be as high as 270 percent, according to Steve H. Hanke, a professor of applied economics at Johns Hopkins University in Baltimore. That caused foreign investors such as Cape Town-based Allan Gray Ltd. -- which struggle to get their money out of the country because of capital controls -- to write down their holdings to more realistic levels. They measure how out of whack prices are by taking the difference between the Harare and London shares of Old Mutual Ltd., Africa’s largest insurer.
 
The Harare stock has sunk 18 percent this week to $7.50, which in Zimbabwe’s skewed markets is a sign that the liquidity crisis is easing. It’s now 4.5 times the price of that in London, when converted to dollars, down from 6.3 in January.
 
Old Mutual shares are 4.5 times more expensive in Zimbabwe than London
Investors won’t be confident the foreign-exchange crisis is over until Zimbabwe’s formal and informal currency rates and the so-called Old Mutual implied rate all converge.
 
Almost two decades of profligate monetary policy has destroyed Zimbabwe’s economy and fueled rampant inflation, decimating the savings of its people twice.
 
Hyperinflation of as much as 500 billion percent in 2008 made savings worthless and led to the abolition of the local currency in favor of the dollar the following year. In 2016, former President Robert Mugabe’s cash-strapped government introduced securities known as bond notes that it insisted traded at par with the dollar. In 2018, it separated cash from electronic deposits in banks without reserves to back them, causing the black-market rate to plunge.
 
Last week, it threw in the towel and allowed bond notes to trade at a market-determined level, once again slashing the value of savings. The decision came after the southern African nation faced shortages of bread and fuel, was hit by strikes and protests, and President Emmerson Mnangagwa’s drive to attract new investment floundered.
 
“At the root of this is the currency crisis,” said Derek Matyszak, a Zimbabwe-based research consultant for South Africa’s Institute for Security Studies. “This is analogous to them creating a giant Ponzi scheme that originated under Mugabe. What we are seeing now is that Ponzi scheme collapsing.”
 
‘1-to-1 Fiction’
The latest step, while welcomed by what’s left of the country’s business sector, is unlikely to solve Zimbabwe’s problems because all it does is reflect exchange rates on the black market, according to Steve H. Hanke, a professor of applied economics at Johns Hopkins University in Baltimore.
 
“The 1-to-1 is a fiction,” Hanke said. “They are saying officially we are going to condone what has been happening anyway. It officially says, ‘we robbed you.’”
 
The gap between Zimbabwe's formal and parallel FX rates is still wide
The interbank rate for the new currency is about 2.5 to the dollar, data published on the central bank’s website shows. That figure is meaningless because the authorities are failing to divulge the volume of trade, according to marketwatch.co.zw, a website run by financial analysts. It estimates the black-market rate for the bond notes is 3.36 per dollar.
 
We see this interbank rate as completely meaningless until the Government allows for transparency on volumes etc.. As for the general public the Parallel market is still flourishing.
 
The origins of Zimbabwe’s currency crisis stretch back to a violent land-reform program initiated by Mugabe in 2000, which slashed export income and devastated government finances.
 
In response, then-Reserve Bank of Zimbabwe Governor Gideon Gono, known as ‘God’s banker’ because of his close ties to Mugabe, increased printing of Zimbabwe dollars exponentially to pay government workers, stoking inflation and eventually making the currency valueless.
 
Printing Money:
“It was a Ponzi scheme in the past,” said Ashok Chakravarti, an economist and lecturer at the University of Zimbabwe. “Especially in the Gono era, where that chap just kept printing money.” Gono didn’t answer a call to a mobile phone number he has used in the past.
 
The currency’s collapse led to the predicament Zimbabwe now finds itself in -- chronic cash shortages and rampant inflation.
 
By late 2008, some Zimbabweans had reverted to barter trade as illicit dealings in foreign currencies flourished. In February 2009, the answer the government came up with was to switch to the use of foreign currencies, mainly the U.S. dollar.
 
“Dollarization puts a hard budget constraint on the system,” said Hanke. “You can’t go to the central bank or any other government institution to get credit for the government.”
 
Repaying Debt:
The pressure on government finances led to history repeating itself, with a loophole being found: the introduction of bond notes and locally denominated electronic money. That contributed to money in circulation growing to more than $10 billion, according to George Guvamatanga, the permanent secretary in the Finance Ministry. The figure was $6.2 billion in 2013, said Tendai Biti, a senior opposition leader and former finance minister.
 
“If you continue to print money you are destroying what you are creating,” Guvamatanga said. Under a stabilization program introduced by Finance Minister Mthuli Ncube in October, the government is now repaying domestic debt, has stopped issuing Treasury bills and has no overdraft with the central bank.
 
That’s helped the economy move toward “walking on two legs, there is an effort to go in a different direction. It’s an inevitable adjustment.”” Chakravarti said. “It’s very unfortunate that this is the second time in 10 years people have lost the value of their savings. In 2009 we all went down to zero including me.”
 
For some observers the latest development isn’t a sudden discovery of fiscal discipline. It’s another admission of failure and the victims are Zimbabwe’s people.
 
Zero Savings:
To Biti, who says the new currency will fail because it isn’t backed by reserves, it shows the country has come full circle.
 
“It’s theft because people had regrouped and rebuilt their lives from zero based on the U.S. dollar,” he said.
 
The country’s best hope is to join southern Africa’s Common Monetary Area, which is dominated by South Africa and its rand, Biti said. That would give certainty to business and impose fiscal discipline on the government, as opposed to the current arrangements that are unsustainable, he said.
 
“It’s a Ponzi economy,” he said.
South Africa has disclosed that it turned down a request from Zimbabwe for an emergency loan of $1.2bn (£932m) in December.
 
Treasury spokesman Jabulani Sikhakhane said South Africa did not have "that kind of money".
 
Zimbabwe's government had hoped to use the cash injection to stabilise the ailing economy and resolve fuel shortages in the country.
 
Soon after the request was rejected, Zimbabwe's President Emmerson Mnangagwa was forced to announce a steep increase in the price of fuel - a move which has caused angry protests.
 
Police have violently repressed the protests that broke out mainly in the capital, Harare, and the southwestern city of Bulawayo, with some reports that they were conducting door-to-door searches and using of live ammunition.
 
Human rights groups say at least a dozen people have been killed, but there has been no official confirmation.
 
The UN called on the government to halt the "excessive use of force" by security forces.
 
President Mnangagwa tweeted that he was abandoning plans to attend the Davos economic summit and return home to deal with the crisis.
 
 
Source: BBC
 
Zimbabwe will introduce a new currency in the next 12 months, the country’s Finance Minister said, as a shortage of United States dollars plunges the financial system into disarray, forcing businesses to close and threatening unrest.
 
The southern African nation abandoned its own hyperinflation-wrecked currency in 2009 at the height of an economic recession, adopting the greenback and other currencies including sterling and the South African rand.
 
But without enough hard currency to back up the $10 billion of electronic funds trapped in local bank accounts, businesses and civil servants are demanding payment in cash which can be deposited and used to make payments both inside and outside the country.
 
Mthuli Ncube told a town hall meeting late on Friday that a new local currency would be introduced in less than twelve months.
 
“On the issue of raising enough foreign currency to introduce the new currency, we are on our way already, give us months, not years,” he said.
 
Zimbabwe currently has less than two weeks import cover, according to central bank data, and the government has previously said it would only consider launching a new currency if it had at least six months of reserves.
 
Locals are haunted by memories of the Zimbabwean dollar, which became worthless as hyperinflation spiralled to reach 500 billion% in 2008, the highest rate in the world for a country not at war, wiping out pensions and savings.
 
A surrogate bond note currency introduced in 2016 to stem dollar shortages has also collapsed in value.
 
President Emmerson Mnangagwa is under pressure to revive the economy but, in something of a vicious circle, the dollar shortages are undermining efforts to win back foreign investors sidelined under his predecessor Robert Mugabe.
 
With less than $400 million in actual cash in Zimbabwe according to central bank figures, there are fuel shortages and companies are struggling to import raw materials and equipment, forcing them to buy greenback notes on the black market at a premium of up to 370%.
 
The Confederation of Zimbabwe Industries has warned some of its members could stop operating at the end of the month due to the dollar crunch.
 
Zimbabwe’s iconic manufacturer of cooking oil and soap, Olivine Industries said on Saturday it had suspended production and put workers on indefinite leave because it owed foreign suppliers $11 million.
 
A local associate of global brewing giant Anheuser-Busch Inbev said this week it would invest more than $120 million of dividends and fees trapped in Zimbabwe into the central bank’s savings bonds
 
 
Source: Global Market
 
Zimbabwe has invited bids for the state-owned airline as President Emmerson Mnangagwa’s government pushes ahead with a drive to privatise and end state funding to loss-making firms, Air Zimbabwe’s administrator said on Monday.
 
Air Zimbabwe, which owes foreign and domestic creditors more than $300 million, was in October placed into administration to try and revive its fortunes.
 
The troubled airline is among dozens of state-owned firms, known locally as parastatals, that are set to be partially or fully privatised in the next nine months as the government seeks to cut its fiscal deficit seen at 11 percent of GDP this year.
 
Air Zimbabwe administrator, Reggie Saruchera said in a notice published in media on Monday that potential investors should make their bids before November 23 after paying a non-refundable deposit of 20,000 dollars.
 
Ms Saruchera did not indicate whether investors would be allowed to tender for partial or total shareholding in Air Zimbabwe. He was not immediately reachable for comment.
 
Only three of Air Zimbabwe’s planes are operational, with another three grounded, which has forced it to abandon international routes.
 
 
(Reuters/NAN)
 
Zimbabwe has appointed an independent administrator to run its loss-making national airline to try and revive its fortunes, according to an official notice.
 
Air Zimbabwe has been struggling with a $300 million debt, including to foreign creditors. Only three of its planes are operational, with another three grounded, which has forced it to abandon international routes.
 
Justice Minister Ziyambi Ziyambi appointed Harare-based chartered accountant Reggie Saruchera as administrator with powers to “raise money in any way without the authority of shareholders for the purposes of the reconstruction,” according to a government gazette published late on Friday.
 
Finance Minister Mthuli Ncube said on Friday the government was hoping to sell stakes in Air Zimbabwe and other state-owned companies under a package of reforms - though the airline has failed to attract private investors in the past.
 
The government said in April it had bought two Boeing 777 aircraft and an Embraer plane from Malaysia but added that the planes would be leased to a new local airline until Air Zimbabwe returned to profitability.
 
 
Source: News24

Zimbabwe’s annual inflation rate rose 1.38 percent to 4.29 percent in July 2018, latest figures from the Zimbabwe National Statistics Agency (ZImStats) show.

This was a significant upturn from the June 2018 figure of 2.91 percent.

On a monthly basis, the inflation rose 1.03 percentage points to 0.98 percent.

“The month-on-month inflation rate in July 2018 was 0,98 percent gaining 1,03 percentage points on the June 2018 rate of -0,05 percent,” said ZimStats in its monthly update.

Some observers have attributed the quickening inflation to the continuance of the parallel currency market.

Although the Reserve Bank of Zimbabwe (RBZ) has maintained the US dollar-bond note official rate at 1:1, cash shortages have resulted in a thriving black market for physical currency, both bond notes and United States dollar notes.

It is largely expected that the high demand for US dollars by both companies and individuals continues to push up the exchange rate.

 

Source: Vanguard

After defying economic gravity for a year, Zimbabwe’s homemade U.S. dollars have fallen to earth with a bump.

Rumours the central bank was buying up black market U.S. dollars last month with one of its own versions of the currency created panic in a country scarred by the hyperinflationary spiral of 2008 that wiped out people’s savings. The worthless Zimbabwe dollar was replaced by the U.S. dollar in 2009 but the economy has struggled over the last 18 months because of a massive domestic shortage of greenbacks.

As a result, cash, especially crisp, new, $100 bills, has enjoyed a steady 10 percent to 20 percent premium over dollars stored electronically in bank accounts – nicknamed “zollars”.

But two weeks ago, the rumours that even the central bank had run out of hard currency sent the premium soaring to nearly 50 percent, according to black market traders and unofficial measures of the zollar value.

“I am really scared that I will wake up one day and find my money in the bank is worthless,” said Jethro Nkosi, a computer technician at a hotel in the capital Harare.

The central bank has not published currency reserves since dollarisation and Zimbabweans worry it is creating zollars without the backing of sufficient reserves or gold, leaving the system vulnerable to a crisis of confidence. Another currency implosion would also be a major headache for 93-year-old President Robert Mugabe as he seeks to extend his 37 years in power in an election in less than a year.

On Friday, buying $100 in cash via a bank transfer cost 145 electronic zollars, a marginal improvement on 160 last week. But on Sept. 23, when rumours of the central bank buying black market dollars swept Harare, the rate spiked to 185. The price of everyday goods has also leapt as importers of food to fuel to medicine are forced to turn to an increasingly unfavourable and risky black market to pay for their wares.

In just one week, the cost of cooking oil, cereal and butter imported from South Africa leapt by as much as 30 percent.

Dollars Bollars Zollars?

One Harare banking source said the Reserve Bank of Zimbabwe’s (RBZ) Fidelity Printers and Refiners division sparked the panic two weeks ago by offloading a large quantity of dollar “bond notes” to buy gold from small-scale mining firms. 

When the newly minted notes, nicknamed “bollars”, hit the streets, currency dealers assumed the central bank was mopping up greenbacks from the black market, sending the value of real dollars soaring.

Bond notes are the third form of dollars used in Zimbabwe, besides cash and zollars. Like their electronic counterparts, the quasi-currency notes are meant to be equivalent to dollars issued by the U.S. Federal Reserve but they are now worth less. The notes, backed by an opaque $200 million loan facility from the Cairo-based Afreximbank, were first introduced in November. This week they were trading at 1.3 to the dollar after weakening to as much as 1.5 in late September.

The banking source said RBZ’s Fidelity, Zimbabwe’s sole gold trader, was paying mining firms for gold 60:40 in dollars and bond notes, compared with only dollars a month ago – and that had fuelled suspicions the RBZ was running out of hard currency.

Reserve Bank of Zimbabwe Governor John Mangudya denied Zimbabwe was locked in another currency crisis. He told Reuters the bank was spending $1 million in bond notes a week to buy gold but said that should not affect currency market values.

“In an economy with $180 million of bond notes, I am not very sure whether that amount could have been responsible for a few days’ change in economic fundamentals of premiums in the parallel markets,” he told Reuters.

Cars, houses or stocks?

However, the situation is febrile and fluid. To try to prevent a run on the domestic banking system, the government has tried to kill the black market with decrees giving the police more powers and stating that illegal currency traders face up to 10 years in prison. Despite the warnings, illegal currency dealers continue to trade on Harare’s streets, albeit more discretely than usual because of plain-clothes police lurking in the shadows.

“This is the only way I can look after my family. But it will now be difficult to trade openly like we used to do,” said currency trader Theresa Chirwa, glancing over her shoulder as she shoved a wad of bond notes and dollars into her satchel.

Assessing the true value of zollars is difficult but economists have revived a gauge used during the hyperinflation era – the Old Mutual Implied Rate – which compares share prices of the Old Mutual insurance firm traded in Harare and London. As the central bank rumours swirled last month, the premium for Harare shares over their London counterparts surged, meaning Zimbabweans need far more of their electronic dollars to buy the shares than someone in London using ordinary U.S. dollars.

Besides trying to get their hands on hard cash, Zimbabweans are also converting zollars into tangible assets such as cars or property, or piling into the stock market in the hope shares will hold value even if their bank balances are obliterated.

As a result, Zimbabwe’s main stock index, the ZSE Industrial , has surged 77 percent in the last month to a record high of 433 this week. The index has tripled so far this year. “I‘m investing in equity funds – hopefully that should give me some value for my money,” said Nkosi, the computer technician. “We don’t know what tomorrow holds.”

 

Credit: Reuters

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