ZIMBABWE’S economic landscape has been fraught with challenges, particularly in managing the currency situation and combating hyperinflation

ZIMBABWE’S economic landscape has been fraught with challenges, particularly in managing the currency situation and combating hyperinflation While the debate between fully dollarising the economy and continuing with volatile local currencies remains critical, it has become more apparent with the recent data indicating significant revenue losses due to informalisation and exchange rate mismanagement In this light, what then stands as a better devil for the economy between a full-blown dollarisation drive and sticking to a volatile series of local currencies According to data presented at the 2024 Zimbabwe Economic Development Conference, a study focusing on 148 countries over a 28-year period revealed a negative correlation between informalisation and tax revenue where every 1% increase in informality equates to a 0,45% loss in tax revenue The Zimbabwean economy, on the other hand, presently comprises of over 75% informality against the aggregate economic activities This has significantly surged in recent years amid heightened currency volatility as arbitrage gained momentum In this light, between 2020 and 2023, the Zimbabwean government reportedly lost at least US$3 billion in potential revenue due to its handling of the exchange rate This constitutes, conservatively, US$1,15 billion potentially lost to informalisation, alongside losses from an overvalued currency and inflation-affected payments These figures underscore the urgent need for a stable and effective currency strategy, and highlight the negative impact of having a weak local currency On the other hand, alternatively, adopting the US dollar (USD) as the sole currency may stabilise inflation and exchange rates, mitigating the aforementioned value losses while bringing with it a new set of challenges It is, therefore, imperative to assess between the pros and cons of either to ascertain the best strategy that speaks to the long-term blueprint of Zimbabwe Zimbabwe’s history of hyperinflation can be mitigated by leveraging the stability of the USD, providing a more predictable economic environment and subsequently eradicate any exchange loss potential A stable currency can attract foreign direct investment (FDI Investors are more likely to invest in an economy where the currency is stable and predictable, potentially spurring economic growth and development The stability of the USD can make Zimbabwe a more attractive destination for investors, who would not have to worry about currency devaluation affecting their returns This influx of investment can lead to job creation, infrastructure development, and overall economic growth Furthermore, a hard currency as a sole functional currency in Zimbabwe can facilitate trade by reducing exchange rate risks, making it easier for Zimbabwean businesses to engage in international trade With a stable currency, the informal sector may shrink as businesses and individuals gain confidence in the formal economy In hindsight, this would aid in reducing the revenue losses associated with informalisation Source: The Standard Zimbabwe All Zim News is a central hub for all things Zimbabwean, curating news from across the country so no story is missed Alongside aggregation, our team of nationwide reporters provides real-time, on-the-ground coverage Stay informed and connected — reach us at admin@allzimnews.com. Source: Thestandard