Zimbabwe's currency crisis may worsen

Subject

Zimbabwe cash crisis.

Significance

New Finance Minister Mthuli Ncube implemented a 2% tax on money transfers and unveiled other proposed reforms in early October. Initial uncertainty surrounding the new measures led to panic-buying of supplies, cash shortages and a subsequent clampdown on public protests. Following modifications, the new measures have been endorsed by local industry, the IMF and the World Bank -- but public mistrust lingers.

Impacts

• Foreign currency shortages may worsen as exporters face rising costs without a market-based foreign exchange rate for converting earnings.
• The Reserve Bank will struggle to gain the trust of the public, government and investors amid recent corruption scandals.
• Wasteful spending, corruption and public-sector wages (which account for 90% of budget spending) will persist as major deficit drivers.