Zimbabwe needs more economic reforms to stabilise multi-currencies system

Zimbabwe requires more economic reforms to stabilize the undervalued United States dollar to make local business competitive following the introduction of the multiple currencies in 2009, the Zimbabwe Economic Policy and Research Unit (ZEPARU) has said.

Zimbabwe adopted the multi-currency system in 2009 to curb runway inflation which peaked at 500 billion percent  in 2008 and destroyed its local currency.

In a study, ZEPARU said dollarising the economy prohibited exchange rate devaluation and government had to pursue a combination of increased productivity and cost reduction of doing business to regain competitiveness.

Experts say the greenback has been devalued by 15 percent since the country adopted the multiple currency regime five years ago.

“Zimbabwe’s situation resembles the situation of European countries which had their currencies fixed to the euro in the wake of the global financial crisis of 2008, and examining their policy responses to the competitiveness challenge can be instructive,” read the report.

“Rather than devaluing their currencies, these countries regained their competitiveness through a series of policy responses to achieve the required levels of internal devaluation. Key among these measures was achieving fiscal balance through public wage cuts, which had ripple effects throughout the rest of their economies.”

ZEPARU said a review of policies would also lower the cost of doing business and make local firms more competitive and subsequently make Zimbabwe a low cost producer of goods and services.

“This will involve a systematized cost cutting measure across all the sectors of the economy, incorporating a reduction in employment costs in both government, the private sector, parastatals, local authorities and other public institutions.”

“These measures should close the un-competitiveness gap, making exports more viable, improving private sector profitability and enhancing higher volume sales.”

The think tank said improving private sector profitability would result in an increase in government taxes and enhance margins on commodities whose pricing is currently facing international pressure.-The Source

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