The World Bank has thrown a lifeline of US$60m or Zim$1bn to the Zimbabwe government in a bid to prop up the suddenly weakened Zimdollar. The aim is also to restore investor confidence in the economy and boost the country's depleted foreign currency reserves in the short to near-term.
The Zimdollar, already squeezed by the triple effects of a volatile balance of trade, sluggish donor inflows and poor investor confidence, crashed against the US dollar by 79% in early December. The unprecedented scale of the crash, sent shock waves through government and business circles. In response, the Reserve Bank of Zimbabwe (RBZ) nudged the key rate up by three percentage points to 31.5%, and ordered commercial banks to convert corporate accounts into Zimdollars.
The RBZ also sold off some of its US dollar holdings on the interbank market to support the Z$.
There were immediate allegations from local companies that commercial banks had liquidated their foreign currency accounts at the old rate to make a killing from sales at the new rate of US$1 to Zim$20.1. The old rate was US$1 to Zim $15.5.
A certain multinational subsidiary has claimed that it has lost Zim$15m by this allegedly fraudulent activity. Local banks and other financial institutions will either face legal action by their corporate clients or return the money at the rate they paid for it.
Commercial Banks have responded to the key rate hike by increasing their fine rates.
Finance minister Mr Herbert Murerwa commenting on The World Bank lifeline said: "It is our hope that the disbursement of the funds by The World Bank and IMF will trigger bilateral support from donors for balance of payment support."
But economists and industrialists have castigated the minister for addressing what they termed as "only the symptoms of distorted economic policies during the 17 years of black majority rule." "Mr Murerwa should tackle the structural defects in the economy first," claimed a visibly irate economic commentator when he lashed out at the government in a column in one of the two leading financial weeklies in Zimbabwe.
The commentator said Mr Murerwa should persuade President Mugabe and his team to galvanise the shrinking export base, create an investor-friendly image, and apply fiscal brakes on public expenditure.
Economists are worried that in the absence of sustainable funding measures, the Z$4bn which the government ear-marked for ex-combatants this Christmas, would inflate the fiscal deficit by...