IRIN Focus on financial woes

As bankers in Zimbabwe lobbied the government of President Robert Mugabe to abandon its fixed exchange rate for the local currency, economists warned on Thursday that any devaluation could push the country’s spiralling inflation further out of control. Such are the constraints on an economy desperately short of foreign exchange, that they saw little hope the government would agree to a devaluation. They also told IRIN that any change to the exchange rate would bring higher prices, and further social unrest in a country where tensions are already high over political campaign violence. The local Zimbabwe dollar has been fixed at 38 to the US dollar since January last year. The country’s bankers, industrialists and tobacco farmers see a rate of 46 to 48 as more realistic. But with inflation running at close to 60 percent and foreign payments arrears already estimated at some US $400 million, there is little room to maneuver. A crisis “We find ourselves in a crisis,” said Farai Zizhou, chief economist at the Confederation of Zimbabwe Industries. “If we cannot adjust the exchange rate, we will not earn enough foreign exchange. At the moment we have a situation with some people operating an illegal parallel exchange rate ranging from 45, 46 to 47 Zimbabwe dollars against the American dollar.” Any devaluation now, he said, would have a “very significant” impact on inflation, as well as on the external debt. “They know that if you devalue in a high inflation environment, that inflation will go up again. For inflation to come down, they will have to do something about the budget deficit. What we need is devaluation as part of a wider package of economic reforms that address all these factors.” A foreign currency trading specialist in South Africa said pressure was also mounting on the Zimbabwe dollar because all the currencies in neighbouring countries - Zimbabwe’s key trading partners - had lost value against the American dollar in recent days. The Zimbabwe bankers’ view The Zimbabwe Bankers’ Association has been negotiating with the Reserve Bank of Zimbabwe over the possibility of introducing a “managed” exchange rate whereby the value of the local dollar can respond to economic changes but still remain under central bank intervention powers should the authorities deem it necessary to intervene in the foreign exchange market. The respected local weekly newspaper, ‘The Financial Gazette’, quoted the association’s deputy president, Lysias Sibanda as saying: “Discussions are underway on the process of efficiently managing the exchange rate. But until a decision is made, the status quo will remain.” The paper said the idea would be that the Zimbabwe dollar be allowed to trade within an agreed range against the American dollar while the association would adjust the rates whenever there were changes in market forces. It said analysts in Zimbabwe welcomed the Banker’s Association’s initiative saying it would bring the value of the local currency in line with market expectations and improve the competitiveness of Zimbabwean exporters. World Bank warning Meanwhile, the World Bank this week said it had advised Zimbabwe that it must make good on an overdue loan payment by early next week or risk the suspension of disbursements from the bank. Richard Uku, communications officer at the bank said the payment owed - an amount he refused to divulge saying such a disclosure was up to the Zimbabwe government - would become 60 days overdue by 15 May. Uku stressed that there was “nothing unusual” in what he called a “routine notification” sent to Zimbabwe this week advising it of the bank’s position. “When a country is late, various notices are sent to it,” Uku told IRIN. “It means that if there is a default, all lending operations, new and current, are suspended until such time that reimbursements are received.” Oil executive resigns In a separate development, ‘The Financial Gazette’ reported that Nicholas Ncube, a prominent businessman brought in to clean up the scandal-ridden National Oil Company of Zimbabwe (NOCZIM) earlier this year, had resigned amid reports that international fuel suppliers are about to stop deliveries to Zimbabwe because of a breakdown in law and order and rampant corruption. Ncube, a successful head of the Zimbabwe Investment Centre (ZIC), was brought to NOCZIM on a three-year contract in January. He took over the heavily indebted national oil supplier after its entire top management was suspended over corruption last year. “Industry sources this week said the burly businessman, who was not available for comment, had become disillusioned with the disruptive dealings of politicians now in virtual control of most of NOCZIM’s operations,” the newspaper said. “Fuel procurement after the suspension of NOCZIM’s managers was placed under a Cabinet task force chaired by Vice President Simon Muzenda. According to the sources Ncube, who initially was appointed head of an interim management committee at NOCZIM, threw in the towel a week ago and asked to be allowed to go back to ZIC.” However, it said the acting NOCZIM chairman, Sylvester Nguni, had insisted that Ncube had not resigned, even though local newspapers have carried advertisements seeking a chief executive officer for what used to be Zimbabwe’s sole fuel importer.