Zim faces drought, but rejects devaluation

Zimbabwe’s central bank on Thursday introduced a new foreign-currency bond to raise money to tackle a serious drought threatening the country, but turned down demands for a general devaluation of the local currency.

In an emergency policy statement unveiled two months ahead of schedule, Reserve Bank of Zimbabwe Governor Gideon Gono also offered new price incentives for tobacco and gold producers facing collapse over a skewed exchange rate.

Gono said Zimbabwe needed to raise foreign currency for imports to avert further drought-induced food shortages.

”The drought situation in the economy impels that appropriate measures be put in place …the Reserve Bank has, with immediate effect, opened up a foreign-currency drought-stabilisation bond,” Gono said.

He said the country’s exporters, local individuals with foreign currency, Zimbabweans living abroad and foreign investors could take up the two-year bonds.

Money raised through the bond would go towards a drought-mitigation and economic-stabilisation fund, which would finance food imports, Gono said.

But analysts said the new measures would not be enough to help President Robert Mugabe’s government ride out a severe economic crisis that many blame on mismanagement, controversial policies and confrontation with Western powers and donors.

The World Bank says the Southern African country has the fastest shrinking economy outside a war zone, while the International Monetary Fund says Zimbabwe’s inflation — already the world’s highest — might accelerate to 3 000% by the end of this year.

On Thursday, Gono said annual inflation jumped to a record 2 200 % last month from 1 729,9% in February, and he raised lending rates by 100-percentage points to 600% in a bid to tame the rising prices.

Gono, appointed by Mugabe over three years ago to turn around the economy, said there would be no merit in accepting clamours by commerce and industry to devalue the Zimbabwe dollar, pegged at 250 to the United States dollar but selling at 100 times that rate on a thriving black market.

But he indirectly devalued the Zimbabwe dollar to an effective rate of Z$15 000 to the US dollar by offering a new rate for foreign currency that the central bank will be buying for the new drought-stabilisation fund that he said would be set up.

The country’s exporters, mainly miners and tobacco farmers, have protested that the skewed exchange rate has devastated their businesses.

Maize deficit

Zimbabwe is facing an estimated 1,5-million tonnes deficit of the staple maize as a result of low production on commercial farms seized from white people for black resettlement, but Gono said the shortage was mainly due to drought.

”Thorough crop assessments undertaken over the last two months have confirmed the devastating effects of the drought this current season, which drought has not only hit Zimbabwe alone but the sub-region as a whole,” he said.

Zimbabwe, once the breadbasket of Southern Africa, is crippled by foreign-currency and fuel shortages, unemployment of over 80% and the highest rate of inflation in the world.

Mugabe’s government has responded to a series of strikes and political protests since the beginning of the year with a violent crackdown on political opponents.

The central bank governor said the overnight secured interest rate would rise to 600% from 500% previously. The unsecured rate would rise to 700% from 600%.

In a bid to improve the viability of exporters, Gono raised the central bank’s gold-support price to Z$350 000 per gram from Z$16 000 and introduced a new support for tobacco of Z$40 000 a kilogram.

Leading private Zimbabwean economic consultant and commentator John Robertson said Gono had skirted the main issues, and his measures were inadequate.

”This patchwork is not going to repair the economy because the main problems we have are to do with private property rights, lack of production and problems with the international community,” he said. — Reuters

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