Zimbabwe - Seen Introducing Dual Currency To Tackle Liquidity Crunch

by **Ponee** Sun Nov 10, 2013 2:38 pm

Zimbabwe - Seen Introducing Dual Currency To Tackle Liquidity Crunch

November 9, 2013

By Chipo Musoko, HARARE, November 9 (The Source) – Zimbabwe is likely to adopt a dual currency system that could bring back the Zimbabwe dollar alongside the United States currency if the government fails to resolve the liquidity crisis and to convince multilateral institutions to lend money, an analyst has said.

Zimbabwe ditched its local currency after being rendered worthless by hyper-inflation which topped 500 billion percent and adopted the multi-currency system dominated by the US dollar in February 2009.

It has enjoyed an economic growth rate averaging seven percent since then and inflation fell to 0.86 percent in September but GDP growth is seen slowing to three percent this year after President Robert Mugabe’s ZANU-PF party claimed a decisive victory in the July 31 elections disputed by the opposition.

Finance minister Patrick Chinamasa has said the regime will continue indefinitely but Tony Hawkins, the head of the University of Zimbabwe’s Graduate School of Management said the tightening liquidity in the economy could force a rethink and that there was always the risk that politicians would seek a “superficially attractive” way out to finance campaign promises.

“I suspect – perhaps fear – that the government will opt for some dual currency option,” said Hawkins in a presentation of the 2014 economic outlook on Wednesday.

An International Monetary Fund (IMF) delegation is in the country to assess progress made in implementing the Staff Monitored Programme (SMP), which if successful, could help it clear $10 billion in external debts and give it access to new credit from international lenders although that is unlikely to happen soon.

“Given the IMF forecast of a sluggish global economy and the third successive year (in 2014) of decline in non-fuel commodity prices, Zimbabwe can expect little in terms of an external stimulus to growth. This means growth must be domestically-driven in an economy where the government budget is under enormous pressure and there is no scope for a fiscal stimulus,” said Hawkins.

Information minister Jonathan Moyo recently said the ZANU-PF party election manifesto left the door open for the return of the local currency to circulate along with the multiple-currency, although not in the foreseeable future.

The government has adopted a new economic blue print, Zimbabwe Agenda for Sustainable Socio-Economic Transformation (ZimAsset) which projects a GDP growth of 6.1 percent in 2014 and 9.9 percent by 2018 but Hawkins said the plan failed to explain where the investment would come from.

President Mugabe told a party meeting on Friday that government expects more money from diamond sales after the European Union removed sanctions on the state-owned Zimbabwe Mining Development Corporation.

http://source.co.zw/2013/11/zimbabwe-seen-introducing-dual-currency-to-tackle-liquidity-crunch-hawkins/#sthash.AV3SGwow.PPgUiURX.dpuf