Zimbabwe’s government has a trust problem as it introduces a discounted currency in a bid to reverse chronic cash shortages that left people struggling to get hold of basic goods.
Business people and economists welcomed last week’s decision to abandon an unrealistic dollar peg for the country’s surrogate bond notes and electronic dollars, which were merged into a new currency called the Real Time Gross Settlement dollar.
But they expressed doubts about whether the government has the fiscal and monetary discipline to stick to its commitment to lower the budget deficit and keep inflation in check.
“There is nothing to stop Zimbabwe [from] printing money with this new currency,” said Jee-A van der Linde, an analyst at South Africa-based NKC African Economics. “The government has basically kicked the can down the road in recent years by trying to stimulate the economy through excessive spending.”
Zimbabwe’s currency woes have undermined President Emmerson Mnangagwa’s efforts to win back foreign investors who were sidelined under his ousted predecessor, Robert Mugabe.
The last time Zimbabwe had its own currency, a decade ago, Mugabe’s government was able to turn on the printing presses to fund higher salaries for government workers, curry favour with the military and pay political opponents—with disastrous economic consequences.
Residents of the capital, Harare, now wait outside banks for hours to withdraw a maximum of around $30 in surrogate money or collect remittances from relatives abroad. Snaking queues have become the norm at petrol stations because of a shortage of fuel.
Finance Minister Mthuli Ncube last week pledged to contain public spending and reiterated the importance of the independence of the central bank. Yet, investors and Zimbabweans remain concerned that, should Mnangagwa’s government come under political or military pressure, it may revert to the tricks of the past.
Some also fear that the Reserve Bank of Zimbabwe, the country’s central bank, will be unwilling to loosen its grip over the currency as its governor, John Mangudya, is thought to oppose the move to abandon the dollar peg.— Reuters