“West has met his match in Putin.” Zim’s chairman will copy Russia’s currency strategy
Zimbabwe’s President Emmerson Mnangagwa is trying to emulate Russian President Vladimir Putin in his bid to revive Africa’s worst performing currency.
Mnangagwa’s administration could announce plans as early as this week for government departments in Zimbabwe – under U.S. sanctions for economic mismanagement and human rights abuses over the past two decades – to show a “strong preference for the Zimbabwean dollar in payment for services, according to Persistence Gwanyanya, a Harare-based economist and member of the Monetary Policy Committee of the Reserve Bank of Zimbabwe.
“We are going to see a significant shift from the government to our own currency,” Gwanyanya said in a phone interview on Sunday. “We are learning lessons from Russia, one of them is that a heavy reliance on the US dollar is not good. We want to try to reflect some of these geopolitical issues in our local economy.
Russia’s attempts to strengthen the ruble by requiring payment for gas and oil in its own currency as well as strict capital controls have protected the ruble. Putin resorted to this measure because of the heavy sanctions for his war in Ukraine. But Zimbabwe’s attempts to shed its dependence on the US dollar may be more difficult. Greenbacks are used to pay for almost everything, from food and fuel to medicine and road tolls. Since the beginning of this year, workers, including teachers and bank employees, have been demanding salaries in US dollars to meet the cost of living indexed in foreign currencies.
Zimbabwe recorded a trade deficit of $1.2 billion last year, according to data compiled by Bloomberg. That compares to a $203 billion surplus for Russia over the same period.
Even Mnangagwa’s government has already been criticized for undermine its own currency in favor of the US dollar, paying its workers their bonuses in foreign currency last year.
Under the new measures, payment in local currency will increase for services, including obtaining passports, paying import duties and taxes. An agreement has already been reached with the Treasury, Gwanyanya said. The local currency officially trades at 159.34 per US dollar and has lost a third of its value this year. On the parallel market, it sells for 400 per US dollar.
“Western powers have met their match in Putin, who demands payment for gas and oil in roubles,” Mnangagwa said last month. “So now we’re telling our industrialists, all these big companies, that any investor who comes here has to buy using the Zimbabwean dollar.”
US sanctions known as the Zimbabwe Democracy and Economic Recovery Act prevent international lenders from providing lines of credit to Zimbabwe. Struggling with $13 billion in overseas obligations, Zimbabwe cannot borrow without first settling its arrears.
The rules also impose stiff penalties on foreign companies that transact with sanctioned Zimbabwean companies. Zimbabwe’s central bank estimates that at least 100 correspondent banking relationships have been lost by the country due to the impact of the restrictions.
The southern African nation has already tried to strengthen its currency after abandoning the use of the US dollar in favor of the Zimbabwean dollar in 2019. But the local currency has struggled to find acceptance, weighed down by volatility and the acceleration of inflation.
“What’s different from other announcements in the past is that we didn’t see the executive stepping in,” Gwanyanya said. “We have executive buy-in on all issues.”
On Sunday, Central Bank Governor John Mangudya did not respond to a call seeking comment on his cellphone.
Mnangagwa in a opinion A report in state media on Sunday said the impending measures “will boost confidence in local unity.”
Other highlights from the interview:
- The rise in annual inflation to 96.4% in April is a “temporary shock. We don’t want to keep raising the interest rate just yet. Let’s wait and see with the measurements when we put them in.
- Clearing the backlog of about a month of the central bank’s auction backlog will also be key to resolving exchange rate volatility. Auction management will send the signal that we are heading in the right direction.
- The biggest factor in the auction backlog was the slowdown in platinum revenues from the 15% enrichment tax. This has since been resolved. Platinum exports earn the country about $120 million per month.
– With the help of David Malingha.