By Agencies

HARARE: In a significant blow to Zimbabwe’s economy, the country’s dollar experienced a sharp decline of 26 percent during Tuesday’s foreign-exchange auction, a Bloomberg report said.

The official exchange rate now stands at 1,888 Zimbabwe dollars to the US dollar, compared to 1,404 just a week ago.

This comes in response to a report issued by a government commission, which stated that the currency was overvalued and advocated for the government to relax foreign currency controls.

The latest development brings the official rate closer to the parallel market rate, which ranges between 2,300 and 3,000 Zimbabwe dollars to the US currency.

A joint report by the Competition and Tariff Commission and National Competitiveness Commission has emphasised the need for market forces to determine the exchange rate and prices, suggesting that this approach is unlikely to lead to price increases since manufacturers’ costs are already linked to the parallel market.

Through the currency reforms, the Zimbabwe government aims to narrow the gap to alleviate severe price distortions of essential goods and services.

Zimbabwe’s Economic Woes Continue

Zimbabwe has been grappling with a wave of price hikes on basic goods and services, prompting the cabinet to establish a dedicated team to investigate the causes of these increases. Retailers have attributed the surging prices to the depreciation of the local currency. Throughout this year, the Zimbabwe dollar has lost more than half of its value, exacerbating economic challenges in the country.

The recent commission report contradicts Zimbabwe’s President, Emmerson Mnangagwa, who squarely blames the business sector for the country’s economic turmoil.

In a statement made on Sunday, cited by Bloomberg, Mnangagwa reiterated his government’s willingness to implement “painful” measures to rectify the situation. However, the commission’s report aligns with growing calls to ease foreign currency controls and allow market dynamics to dictate exchange rates and prices.

The slumping of the Zimbabwe dollar underscores the urgency for the government to take decisive action to address the country’s economic crisis. The currency devaluation aims to align the official exchange rate with the parallel market, thereby reducing distortions and stabilising prices.

As Zimbabwe navigates these challenges, the government will face mounting pressure to adopt comprehensive reforms that promote transparency, stimulate economic growth, and restore investor confidence. -Bloomberg