Finance minister Mthuli Ncube has revealed that the country will have its own “new, fully-fledged currency” within the next 12 months to ease the cash shortages on the market.
In an interview with United States-based Bloomberg Television yesterday, Ncube also said Zimbabwe will soon introduce a central bank reference rate as part of measures to save the economy from further collapse.
Ncube is in Washington DC, for the International Monetary Fund (IMF) and World Bank 2019 Spring Meetings, where he hopes to open new lines of credit for the country that is desperate for industrial re-capitalisation.
Ncube said he also hopes to close the gap between the exchange rate for United States dollars in the official and parallel markets using RTGS dollars, which the government introduced in February.
Asked to be specific on timelines of the introduction of the new currency, Ncube was coy.
“With currency reforms, you can never be precise, but I say 12 months. I am preparing minds, I am preparing your mind, so it is coming,” Ncube said.
The announcement comes at a time the official and parallel market rate of the US$ and RTGS$ continue to widen since the introduction of the virtual currency in February, when government dumped the 1:1 parity that had been in place since 2016 when the bond notes were introduced.
The introduction of the RTGS$ was accompanied by the introduction of a market-based foreign exchange market, where market forces using an inter-bank rate would determine the US$ value against the local virtual currency.
But after holding firm at 1:2.5 for a few days, the RTGS$ has plunged and pushed up the prices of goods, raising fears that the country could be sliding back to the 2008 hyper-inflationary era when Zimbabwe experienced a record 179,6 billion percent inflation rate.
The annual inflation rate is now at its highest since the 2008 hyperinflation era despite the month-on-month price growth slowing to 1,7% in February from 10,8%a month earlier.
But asked how he hoped to contain the continuing collapse of the RTGS$ that has given in to the US$ barely two months after its introduction, Ncube said the billions of US$ to be racked in during this year’s tobacco selling season will stabilise the currency.
Ncube admitted the country was having fiscal challenges, but claimed the situation would soon be under control. The weakening of the RTGS$, Ncube said, was a result of the huge demand for foreign currency.
“There is demand for foreign currency in the market, foreign currency is always short, but we are looking forward at an improved tobacco season. We earn about a billion dollars (US$) from the sale of tobacco globally, so we expect that to stabilise the market in the next few months. Of course, it is early days, we just introduced the new currency regime a month ago,” Ncube said.
“So it is trying to find its way, trying to find equilibrium; it will get there, it will close that gap between the parallel market and the official flouting market rate.”
Ncube did not elaborate how he intends to close the ever-widening gap between the official and parallel market rate of the US$ against the RTGS$, but said the decline would soon stop.
“The decline cannot carry on, you know why, because from the fiscal front things are very tight, because previously the fiscus was the source of money growth and, therefore, causing volatility and the weakness of the currency. We don’t expect the currency to go under pressure. The currency cannot run too far away frankly.”
Quizzed why Zimbabwe needs the international financial institutions if recording fiscal surplus, Ncube said the lending institutions were large infrastructure investors and Africa, Zimbabwe included, has a huge infrastructural deficiency in energy and other sectors.
Early this week, Reserve Bank of Zimbabwe governor John Mangudya slammed businesses for wantonly raising prices of basic commodities based on the movement of the exchange rate.
He said the rise in the parallel market rate of the US$ was not a significant factor to determine the value of a product, accusing business of exaggerating the effect of the exchange rate in determining prices of goods and services.
On Wednesday, the IMF warned that the country will slide into a recession this year and its economy would shrink by 5,2% as opposed to the 4,2% growth rate projected earlier.