Zimbabwe poised for devaluation, while government moves to save gold mines

Zimbabwe was likely to devalue its currency and reintroduce exchange controls within days, bankers in Harare said on Thursday, following a hardline speech by President Robert Mugabe marking Independence Day. The ‘Financial Times’ reported on Friday that with the annual tobacco sales opening on Tuesday, economists feared farmers would not deliver leaf to the auction floors unless the exchange rate was adjusted to at least Z $75 to the US dollar, from its current level of Z $55. Economists calculated that the real effective exchange rate of the Zimbabwe currency was now the same as it was last July, prior to the 24 percent devaluation on August 1, the report said. On the parallel market the Zimbabwe dollar was trading at about Z $120 to the US dollar late on Thursday. Bankers expected any devaluation to be accompanied by tough currency curbs designed to close down the parallel market. That would require some mechanism to ration scarce foreign currency by way of exchange or import controls, according to the report. Some bankers said about three-quarters of transactions went through the parallel market at rates of between Z $100 and Z $120 to the US dollar. Devaluation would be welcomed by exporters at a time of growing apprehension in business quarters about the hardline stance adopted by Mugabe in his speech, the report said. It added that Mugabe claimed that more than half the country’s 5,000-5,500 white-owned commercial farms had been listed for compulsory acquisition. By the end of March some 2,800 farms had been designated, while 60,000 families had been resettled on 2.4 million hectares of land. Also, in an effort to shore up the gold mining sector, the Reserve Bank of Zimbabwe announced on Thursday the revival of its gold price support programme. The state-controlled ‘Herald’ reported on Friday that over 15,000 jobs would be saved in the sector by the scheme which would allow the central bank to buy gold at above international market prices. According to the report, the move would encourage gold exploration, the development of existing mines and the opening of new mines, while creating employment in the mining sector. Suppliers and distributors of mining equipment would also benefit from the move. Gold producers would fetch US $343 for an ounce of gold against an average world market price of US $260, the report said, meaning that a subsidy of US $83 was going to the gold producers. Zimbabwe had in recent years seen both established mining concerns and small-scale gold mines closing down as a result of the depressed international prices, according to the report.