Zimbabwe: OK Zimbabwe Blames ZWG Devaluation - Calls for Market-Determined Exchange Rates

LEADING retailer Ok Zimbabwe says the Reserve Bank of Zimbabwe's (RBZ) decision to devalue the ZWG currency doubled the entity's US$-denominated loans and credits.

The supermarket chain is currently reeling under pressure to keep its heads above water as most shelves have gone empty without any stocks. At the heart of the problems is supplier resistance to offering commodities, which are often paid for in local currency.

The situation has led many suppliers to channel their commodities to the informal market, which often enjoys easy access to the much-needed greenback.

Presenting a trading update for the third quarter period, OK Zimbabwe's group company secretary, Margaret Munyuru, bemoaned the impact of the central bank's decisions.

"The local currency unit (ZWG) experienced a sharp devaluation at the end of September 2024 as monetary authorities sought to improve the viability of the exchange rate system for the broader economy. Invariably, the devaluation had the net effect of nearly doubling existing US Dollar denominated obligations in loans and creditors' balances," she said.

In September 2024, the RBZ devalued the ZWG currency by 43% to keep pace with exchange rate premiums which had seen the official rate at the time stuck at ZWG13,80 when the parallel market rate had gravitated to a premium of ZWG30 against the greenback.

The move effectively worsened most retailers' and companies' balance sheets as they now had to pay more for their debts.

Munyuru said during the period, the group had outstanding and overdue creditors' balances which were predominantly denominated in US$ sales collection.

She attributed the low stocking levels to the direct manifestation of sub-economic pricing arising out of exchange rate distortions and suppliers' need for foreign currency invoicing to cover their operational and raw material needs.

Resultantly, volumes during the period decreased by 36% in comparison to the same period last year. The reduction for the quarter also translated to a 36% revenue decline.

Despite the challenges, the business has since begun to restock with support from suppliers as well as financial institutions that continue to assist with short-term funding structures.

New alternative procurement models have been developed which include, but are not limited to, a structured stock supply arrangement with a third party for supplier assurance purposes as the business works to restore critical supply relationships with both local and foreign suppliers.

"The fortunes of the country's formal retail sector hinge on the stability of our exchange rate regime. There is a need for absolute clarity on the roadmap towards a full market-determined exchange rate system. Such a liberalized system will go a long way in restoring the competitiveness of the formal retail sector," added Munyuru.

Read the original article on New Zimbabwe.