Govt's USD Allowances Will Expedite Re-Dollarisation - Economic Analysts

Economic analysts have said the move by the government to offer USD allowances to civil servants might stimulate economic growth for a short while but it will expedite re dollarisation, The Zimbabwean reports.

Speaking to the publication, one economist and ZNCC CEO Christopher Mugaga said:

They are telling the civil servants to go and open nostro accounts. Who is going to fund those nostro accounts? (Reserve Bank governor John) Mangudya is on record as saying the country does not have enough foreign currency.

They have actually created a crisis of expectation, which is disastrous. What will they do after three months? It’s a move which shocked everyone. I think the decision was hastily made. By so doing, they have also expedited the re-dollarisation of the economy. We are actually leaving the multi-currency regime

Another economist who spoke on condition of anonymity said the move by the government will force the government to re-dollarise something the government is not ready for:

For instance, there are about 500 000 civil servants, including the security sector. If each of them deposits US$15 to open a nostro account, banks will have a total of US$7,5 million hard cash. Government will then raid that money like it has been doing. What a grand scheme!

The clever thing Mthuli has done is that they will not give out hard cash. This will stimulate economic activity locally. However, in the long run, it will force the government to fully dollarise the economy, something which they are not ready for as we do not have enough capacity to generate foreign currency. We mostly rely on commodity exports and diaspora remittances.

Another economist, John Robertson said the allowance will disappoint civil servants:

Apparently, George Charamba has confirmed that the US$75 civil servants allowance will not be paid in cash, but in RTGS form, so what they can spend will be 75 times the exchange rate on the day. With the auction setting the rate from next week, that rate will move from 25 to some other number that might move every week.

The US dollars in cash appear not to have been on the cards at all, but I can imagine the civil servants will be disappointed to receive a transfer into their EcoCash account or bond notes instead. I’ve heard a suggestion that tokens, exchangeable at OK (supermarkets), perhaps, will be the way they do it. All very unclear at present.

Civil servants have however rejected the USD Allowances with Doctors and nurses demanding that the allowance be paid out to in cash instead of being deposited into their Nostro accounts.

More: The Zimbabwe Independent