Steep depreciation of the local currency driving price spikes, reducing food access

Across deficit-producing areas, Crisis (IPC Phase 3) outcomes are beginning to emerge as these areas enter into the 2022/23 lean season months earlier than normal due to significantly below average 2021/22 crop production and macroeconomic instability. Meanwhile, relatively better 2021/22 harvests and above average 2020/21 carryover stocks in surplus-producing areas will continue to drive Minimal (IPC Phase 1) and Stressed (IPC Phase 2) outcomes through January 2023. Urban areas are expected to continue to be Stressed (IPC Phase 2) throughout the outlook period due to price volatility.

In July, the local ZWL currency continued to depreciate sharply against the USD with the auction exchange rate climbing to 416 ZWL as of July 29 from 366 ZWL at the end of June and the interbank exchange rate increasing over the same period to 443 ZWL from 365 ZWL. However, parallel market exchange rates saw the steepest increases, jumping to around 800 ZWL at the end of July from 650 ZWL one month earlier. Although the Zimbabwean economy is a multi-currency system, with ZWL, ZAR, and USD in regular use, there is a growing demand in both the formal and informal sectors for payments to be only in foreign currencies, given the volatility of the ZWL.

Despite the government’s calls to benchmark commodity prices using interbank rates and despite the increasing risk of losing operating licenses if they use exclusive USD pricing, most businesses have continued to pursue USD transactions to limit financial losses. However, limited supply of forex is forcing them to use parallel market exchange rates to access USD and this increased demand has contributed to spiking parallel market exchange rates and sharp ZWL price increases for food and non-food commodities. Furthermore, there are fears of shortages for some commodities if manufacturers, wholesalers, and retailers hold back supplies and chose not to sell unless they are able to do so in USD.

As most poorer households typically earn income in ZWL and have limited access to USD, exclusive USD pricing and high ZWL price volatility is reducing purchasing power and access to food. Due to these liquidity challenges, households in rural areas are slowly resorting to bartering using grains and livestock to access certain goods or services. In addition, most poorer households have therefore begun intensified existing livelihood strategies to cope. This includes petty trade, such as the selling of smaller re-packaged food and household items, the intensification of vegetable production for those with access to water, and artisanal mining activities. However, most livelihood strategies remain constrained by low demand, limited capital, and high transportation costs.