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afrol.com / AENS, 12 May - Zimbabwe’s government faced renewed pressure this week to devalue the country’s embattled currency with warnings that attempts to prop up the ZimDollar were seriously harming exports. The currency has experienced a freefall in real world markets not mirrored in official rates. Leading Zimbabwean economist Eric Bloch said on Friday that the country’s fiscal policy had overvalued the ZimDollar (Z$) by up to 50 percent against the currencies of major trading partners. The discrepancy between government’s attempts to peg the ZimDollar at Z$55 to US$1 and the currency’s freefall in the "real world" had, Bloch said, created a massive currency black-market that was beginning to damage the national economy. Bloch, who is also an industrialist in his own right, warned that major exporters such as the tobacco industry believed they would only be internationally competitive if the local currency was devalued to more "realistic levels". - This is the only way government can save export companies from imminent collapse. The immediate devaluation of the currency would at least address the rising input costs we all face, he said. Bloch added that dwindling donor support from the International Monetary Fund (IMF) and World Bank has created an acute shortage of foreign currency and pushed black-market currency rates up to Z$120 to the US Dollar and Z$180 to the British pound. Other major regional currencies, including the South African Rand and Botswana Pula, are also double their official rates. Bloch said bankers estimate the parallel market transacts foreign currency deals totaling US$30 million per month at a time when the inter-bank market is virtually dormant. Many local companies, including airlines, are already pegging their prices in US Dollars. Government is, however, unlikely to heed the calls for devaluation following speculation that the immediate short-term affect would include a general rally in prices for basic food and fuel commodities and the very real possibility of new food riots in an increasingly restive population. Zimbabwean Finance Minister Dr Simba Makoni warned that government would stick to its fiscal policy and accused local banks and exporters of cultivating the parallel market. The influential tobacco industry also lobbied unsuccessfully for a devaluation ahead of the country’s major tobacco auctions in April and has, commentators claim, withheld much of their crop in anticipation of an adjustment of the exchange rate. Tobacco is Zimbabwe’s largest foreign currency earner and raised Z$13 billion last season. Current earning are, however, nowhere near 2000 figures. Analysts argue that government's recent re-introduction of a special gold price support scheme, the Gold Floor Price Support Scheme, was an acknowledgement of the need for the Z$ to be devalued. The scheme obliges the Reserve Bank of Zimbabwe to buy gold at US$343 (Z$18 865) an ounce against the world market bullion price of US$260 (Z$ 14 300) per ounce. This translates into a US$83 (Z$4 565) subsidy per ounce. Local stock broking firm, Sagit Stockbrokers, called backed Bloch this week with their own call for a devaluation of at least 25 percent. Sagit said the ZimDollar would still be overvalued but anything more would result in massive price increases and social instability. Sagit added that the Reserve Bank’s re-introduction of the special gold support scheme meant that the currency had already effectively been devalued by up to 24 percent to the advantage of gold producers only. "So why not make similar concessions to the tobacco industry," said the company in a statement. The Zimbabwe Association of Bureaux de Change also joined the growing campaign, with its chairman Nesbert Tinarwo insisting that the government needed to devalue the ZimDollar and also urgently also deregulate the foreign exchange market. "This would be the most effective way to stamp out the black market," he said. The Bankers' Association of Zimbabwe meanwhile confirmed that the ZimDollar had weakened to at least Z$85 to the US Dollar. Economist John Robertson warned that the national export industry needed immediate relief or many of its most important producers would go bankrupt.
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