By Jeph Ajobaju, Chief Copy Editor
Hyperinflation is prompting Harare to raise public sector pay rise for the second time in three months, but unions say the reintroduction of the local currency makes things worse, with $14 million needed for monthly electricity imports alone.
Incomes have been eroded by soaring inflation, Zimbabwean Finance Minister, Mthuli Ncube, reiterated on July 8, after a labour group threatened protests.
Zimbabweans are angry as year-on-year inflation of around 100 per cent has eaten the value of their wages and savings, recalling the horrors of the hyperinflation era in 2008, Reuters reports.
The country, whose economy Robert Mugabe mismanaged in his 37 years’ rule, grapples with a severe shortage of U.S. dollars, fuel, bread, medicines, and 17-hour daily power cuts, which force businesses to use expensive diesel generators.
Budget surplus makes little impact
Currency reforms introduced in June to ban the use of foreign currencies and make the interim RTGS currency the sole legal tender have done little to instil confidence that people’s living standards will improve soon under President Emmerson Mnangagwa, who replaced Mugabe in November 2017.
“I have a (wage increase) figure already, and I am just waiting to hear from the unions. We will be meeting them tomorrow to hear their figures,” Ncube told a meeting with local businesses in Harare on July 8.
Ncube said the government’s budget was in surplus for the first six months of the year.
The lowest paid public sector worker earns 430 Zimbabwe dollars ($49.54), which unions say has been hit by inflation of 97.85 per cent in May.
As inflation soared, the government hiked the overnight interest rate to 50 per cent in June and Ncube on July 8 said the Central Bank would not hesitate to raise rates again to deal with people speculating on the value of the local currency.
The Zimbabwe dollar was trading at 8.86 to the U.S. dollar on the official interbank market, bringing its total losses to 27 per cent since June 24 when the government ended dollarisation.
On the black market the unit was trading at 10.5 to the dollar.
Central Bank Governor John Mangudya told the same event that Zimbabwean individuals and companies held around $1 billion in foreign-currency accounts, around three months’ import cover.
The Zimbabwe Congress of Trade Unions threatened “mass action” in June after the government made the RTGS the sole legal tender and renamed it the Zimbabwe dollar.
At least three people have gone to court to challenge the move but Ncube said he was “very prepared for the fight” in court.
Power sector debts
Patrick Chivaura, acting CEO of state power utility, ZESA Holdings, told the same meeting that the end of dollarisation was hurting its ability to deliver power because mines could no longer pay it in U.S. dollars.
ZESA needs $14 million for monthly electricity imports from the regional power market, Chivaura added.
“If we clear our debts to (South African power firm) Eskom and (Mozambique’s hydropower company) HCB it would wipe out our (power cut) problems today, I repeat, today,” Chivaura said.
He added that the company was seeking a government exemption to charge mining companies in U.S. dollars to guarantee power supplies.
Eskom has cut back power exports to Zimbabwe because of unpaid debts of around $33 million as of July 1.
$1,000 daily cash withdrawal allowed
Zimbabweans will be allowed to withdraw up to 1,000 U.S. dollars in cash a day from foreign currency accounts, Ncube said on July 1, as Harare prepares to relaunch the Zimbabwe dollar after a decade of dollarisation.
The surprise announcement has eased fears that the Central Bank might raid foreign currency accounts, as happened during Robert Mugabe’s rule in 2008.
Mangudya said individuals and companies in Zimbabwe currently hold $1.3 billion in foreign currency accounts, according to Reuters.
He told a parliament committee that individuals would be allowed to withdraw up to $1,000 a day from their foreign currency accounts without restrictions but that companies would have to talk to their banks if they needed cash dollars.
Zimbabwe, whose crops were scorched by a drought this year, is in the grip of foreign currency and fuel shortages and daily electricity cuts lasting up to 15 hours.
Mnangagwa is trying to repair an economy ruined by hyperinflation and a long succession of failed economic interventions.
In May, Harare agreed a staff-monitored programme with the International Monetary Fund (IMF) to help Zimbabwe implement coherent economic policies.
But a turnaround is yet to materialise, and many Zimbabweans are distrustful of Mnangagwa’s promises.
On June 26, the government renamed its interim currency, the RTGS dollar, the Zimbabwe dollar and made it the country’s sole legal tender, ending a decade of dollarisation and taking another step towards relaunching a fully-fledged currency.
Mangudya said on July 1 the country will initially print 400 million Zimbabwe dollars, to be gradually introduced into circulation to plug the gap left by the end of dollarisation.
Unions threaten strike
Ncube had earlier told the same committee that individuals would be allowed to withdraw U.S. dollars in cash from their foreign currency accounts.
He defended the surprise manner of the announcement and promised that Zimbabwe would not fall into money-printing of the kind that caused hyperinflation in 2008.
With inflation close to 100 per cent in June, and desperate levels of unemployment, Zimbabweans are impatient for progress but are fearful that abandoning dollarisation will cause a new surge in prices.
Unions are threatening strikes if Mnangagwa’s government does not overturn the policy.
More than 80 per cent of Zimbabweans are paid in RTGS dollars but many goods and services are priced in other currencies.
“What we have is fiscal discipline of the highest quality,” Ncube said, adding that the national treasury had been running monthly budget surpluses and would raise public sector salaries this month.
Ncube said the official interbank market, where $525 million has been traded since its launch in February, would be allowed to freely determine the exchange rate.
The Central Bank’s dollar reference rate was 1:7.25 to the Zimbabwe dollar on July 1 but some banks bought U.S. dollars at a rate as low as 8.96, in line with black market rates.
Ncube said the Central Bank’s decision in June to raise the overnight lending rate to 50 per cent from 15 per cent was temporary and meant to stop speculative borrowing by currency traders.