Zimbabwe’s government has instructed banks to stop lending to the government and private sector immediately.
According to Bloomberg, the government’s decision aims to discourage speculation against the Zimbabwean dollar and is part of a flurry of steps to slow the currency’s rapid decline on the black market.
The Zimbabwean dollar, which is officially valued at 165.94 US dollars, has continued to decline on the black market, trading between 330 and 400 US dollars. The black market exchange rate has risen dramatically from roughly 200 Zimbabwe dollars at the start of the year. Due to raging hyperinflation, Zimbabwe’s central bank announced plans to reintroduce the Zimbabwe dollar and seven other international currencies as legal money in 2019.
Payments in foreign currency were banned in June 2019 to give the relaunched Zimbabwean dollar a fighting chance. Harare had no choice but to accept certain payments in foreign currencies when the pandemic struck.
Zimbabwe is currently experiencing a severe economic crisis, characterized by a severe scarcity of foreign currency, significant unemployment (over 90%), low productivity, and hyperinflation, which has depressed purchasing power.
Inflation has been driven up by the black market devaluation of the Zimbabwean currency. In April, year-over-year inflation accelerated to 96.4 percent, up from 60.6 percent in January. This weekend, President Emmerson Mnangagwa advocated measures to stem the currency’s depreciation, which he claimed was jeopardizing Zimbabwe’s economic stability.
“Bank lending to the government and commercial sector is hereby suspended with immediate effect, until further notice,” he stated.
He also accused anonymous speculators of borrowing Zimbabwe dollars at below-inflation interest rates and using the proceeds to trade currency.
Other measures include a higher tax on forex bank transfers, increased fees on foreign cash withdrawals exceeding $1,000, and the payment of previously collected taxes in local currency.
