The cost of goods and services in Zimbabwe continues to rise as the local currency depreciates against the U.S. dollar, with the trend intensifying at the beginning of 2024. The official exchange rate, which stood at 6,192 Zimbabwean dollars per U.S. dollar on January 2, has now reached 8,746 according to the Reserve Bank of Zimbabwe. On the black market, where many Zimbabweans obtain foreign currency, the exchange rate can go up to 13,000 Zimbabwean dollars for 1 U.S. dollar.
Economist Prosper Chitambara attributes the accelerated depreciation of the local currency to the negative reception of the 2024 national budget announced by Finance Minister Mthuli Ncube. The budget included several tax measures that eroded confidence in the economy, leading to a devaluation of the local currency. Additionally, injected liquidity by the government to pay for services and contractors, alongside a growing demand for the U.S. dollar as an investment haven, has further contributed to the depreciation.
Reduced foreign currency inflows into the country, particularly from the mining sector due to global commodity price declines, have also played a role in the depreciation of the Zimbabwean dollar. Since reintroducing its currency in 2019, Zimbabwe has struggled to stabilize its local currency, resulting in a widespread preference for conducting transactions in U.S. dollars. Approximately 80 percent of local transactions in the country are conducted in U.S. dollars, according to ZIMSTAT, the national statistics agency.
The depreciation of the local currency, coupled with low wages and a disparity between official and unofficial exchange rates, has left workers in a dire situation. Workers receiving wages in the local currency are struggling to make ends meet as they cannot keep up with the rising cost of living and find it difficult to acquire U.S. dollars due to the exchange rate distortions.
The exchange rate volatility is also impacting businesses, with informal traders facing challenges in restocking due to increasing wholesale prices. The situation evokes memories of 2008 when Zimbabwe experienced hyperinflation, rendering the local currency nearly worthless.
Workers’ unions are calling for higher wages that reflect the economic realities, suggesting a minimum wage of $450 USD, closer to the poverty datum line of $575 USD. The persisting currency volatility and economic challenges pose significant difficulties for individuals, workers, and businesses in Zimbabwe.
