Zimbabwean Dollar Falls 647%, Hits Formal Sector Hard: IH Securities
According to a recent consumer report by IH Securities, the Zimbabwean dollar has depreciated by 647% this year, which is having a significant impact on those in the formal sector. At the start of the year, the local currency was valued at $705.42 at the central bank foreign currency auction, but as of Tuesday, it had fallen to $5,978.68. On Friday, 16 June 2023, the Reserve Bank of Zimbabwe (RBZ) stated that at the Wholesale Foreign Exchange Auction held on that day, one US dollar was traded at a rate of ZW$6,713.3462. The black market rate was at $900 when the year started but has now reached $7,800.
Month-on-month inflation has surged from 0.7% in January to 15.7%, indicating a rise in the cost of living. Official government statistics reveal that a person needed $29,499.89 in January to be deemed not poor, but this figure had risen to $39,927 by May. These developments are likely to impact the country’s economic growth, which the government initially projected at 3.8%, but revised to 6%. The International Monetary Fund projected growth at 2.5%.
IH Securities notes that the country is increasing dollarisation, but those in the formal sector are likely to be affected by the depreciation of the local currency. It says:
The country continues using a dual currency structure with more than 75% of transactions in the economy being carried out in USD, based on RBZ statistics. On this backdrop, using civil servants as a proxy, salaries have also dollarized albeit still far below 2016 levels.
Regardless, USD inflation is now picking up at a faster rate compared to salary adjustments. Given the significant proportion of what is classified as informal sector that is active in maize production, and following a good agriculture season, consumers based in the agro-sector should experience a recovery in earnings from 2022 levels.
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IH Securities further stated that they anticipate consumer demand to remain steady, bolstered by a strong agriculture season and above-average prices of precious metals.
The financial services provider added that it believes that since the majority of the population is employed in the informal sector, where the currency of trade is the US dollar, the impact of currency headwinds will primarily affect those in the formal sector.
