By A Correspondent| Bankers have issued a stern warning about potential price hikes and shortages of essential goods following the recent devaluation of Zimbabwe’s Gold currency (ZiG). The devaluation, implemented by the Reserve Bank of Zimbabwe (RBZ) last week as part of measures to support foreign exchange flexibility, has sparked concern within the banking sector.
The Bankers Association of Zimbabwe (BAZ) raised these concerns in a leaked internal document, which outlined discussions held with RBZ governor John Mushayavanhu during a meeting on Tuesday. The meeting followed the devaluation of the ZiG by over 40%.
“If market conditions remain challenging—such as high inflation, low investor confidence, or trade imbalances—the ZiG will rapidly lose value, leading to higher import costs and inflationary pressure on goods priced in foreign currency,” BAZ said.
They emphasized the importance of ensuring adequate foreign exchange reserves to meet demand, cautioning against excessive local currency creation.
The bankers further warned that the weakening of the exchange rate could erode investor confidence, drive up import costs, and increase inflationary pressures. “If the exchange rate weakens significantly, it could lead to higher prices for imported goods, pushing inflation higher in an economy already battling price instability,” the association stated.
Consumers are likely to feel the effects through rising prices for essentials such as fuel, food, and other goods priced in foreign currency. Additionally, foreign investors may remain cautious due to short-term market volatility, despite the perceived advantages of a flexible exchange rate.
BAZ also highlighted that the reduction of the foreign currency limit individuals are allowed to take out of the country—from US$10,000 to US$2,000—could disrupt the informal import trade and lead to job losses in the informal sector. The move is expected to push more transactions underground, further straining an already fragile economy.
The bankers warned that job losses or reduced income for those working in informal retail and transportation could exacerbate economic hardships, particularly in a country where formal employment opportunities are scarce.
They also pointed out that the recent increase in the policy rate from 25% to 35% would drive up borrowing costs, likely deterring investment and stifling business expansion. Small and medium enterprises reliant on loans to manage cash flow may struggle to maintain operations due to higher interest payments, leading to reduced cash flow and a potential rise in non-performing loans (NPLs).
BAZ concluded that higher borrowing costs and reduced consumer spending could slow down economic activity, particularly in the retail and service sectors, while the 30% increase in statutory reserve requirements could create liquidity constraints in banks, potentially sparking a liquidity crunch.
The bankers’ cautionary note underscores the fragile balance in Zimbabwe’s economy and warns that the recent policy measures could lead to further economic instability if not carefully managed.