Zimbabwe Key Message Update: Sharp Depreciation of Local Currency Drives Price Spikes and Reduces Access to Food, July 2022 – Zimbabwe
In deficit areas, Crisis (IPC Phase 3) results are beginning to emerge as these areas enter the 2022/23 lean season months earlier than normal due to 2021/22 agricultural production well below average and macroeconomic instability. Meanwhile, relatively better 2021/22 harvests and above-average 2020/21 carryover stocks in areas of excess production will continue to result in minimal (IPC Phase 1) and stressed (IPC Phase 2) results. IPC) through January 2023. Urban areas are expected to continue to be Stressed (IPC Phase 2) throughout the forecast period due to price volatility.
In July, the local currency ZWL continued to depreciate sharply against the USD, with the auction exchange rate falling from ZWL 366 at the end of June to ZWL 416 on July 29 and the interbank exchange rate increasing over the same period to 443 ZWL versus 365 ZWL. ZWL. However, parallel market exchange rates saw the largest increases, rising to around ZWL 800 at the end of July from ZWL 650 a month earlier. Although the Zimbabwean economy is a multi-currency system, with ZWL, ZAR and USD regularly in use, there is a growing demand in the formal and informal sectors for payments to be in foreign currency only, given the volatility of the ZWL.
Despite government calls to benchmark commodity prices using interbank rates and despite the growing risk of losing operating licenses if they use proprietary USD prices, most companies have continued to transact in USD to limit financial losses. However, the limited supply of currencies forces them to use parallel market exchange rates to access the dollar and this increased demand has contributed to the spike in parallel market exchange rates and the sharp increase in ZWL food prices. and non-food. Additionally, there are fears of shortages for some products if manufacturers, wholesalers and retailers withhold supplies and choose not to sell unless they are able to do so in USD.
Since most poorer households typically earn income in ZWL and have limited access to USD, exclusive USD pricing and high price volatility in ZWL reduce purchasing power and access to food . Due to these liquidity problems, households in rural areas are slowly resorting to barter using grain and livestock to access certain goods or services. In addition, most poorer households have therefore begun to scale up existing livelihood strategies to cope. This includes petty trading, such as selling small foods and repackaged household items, scaling up vegetable production for those with access to water, and artisanal mining. However, most livelihood strategies remain constrained by low demand, limited capital and high transportation costs.