Investigating an effective de-dollarisation strategy for Zimbabwe (August 2015 to May 2017)
Mandeya, Nyasha Patience
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The main aim of this study was to investigate an effective de-dollarisation strategy for Zimbabwe and establish the probability of successfully dollarisation. The study is motivated by a background of piecemeal interventions to establish an effective monetary regime to address competitiveness challenges related to currency overvaluation and the persistent liquidity crunch. In the absence of a conventional de-dollarisation strategy, the study sought to establish a probable framework of de-dollarising the Zimbabwean monetary regime. Ordinary Least Squares regression analysis was used to determine factors that induce de-dollarisation while Probit regression analysis was used to establish the probability of successfully de-dollarising, using time series data over the period 1980 to 2016. The study findings were consistent with the Institutional, Portfolio and Market Views showing that fiscal balance, current account balance, debt and institutions and gross domestic product are key in inducing successful de-dollarisation for Zimbabwe. De- dollarisation in itself is not a policy objective but rather a means to an end. As such a successful de-dollarisation strategy should comprise a comprehensive mix of structural reforms that address the macroeconomic environment to ensure a positive fiscal balance, positive current account balance and improvement on the global debt position. Complementary sound market based incentives and micro prudential measures, and an overhaul of the institutional make up also constitute this framework. Notwithstanding the fact that de-dollarisation requires time needing persistent and well coordinated efforts, making implementation dynamics such as policy sequencing a critical component of the successful de-dollarisation strategy. However the odds ratio in favour of a successful dedollarisation outcome for Zimbabwe is predicted at 42%, implying poor chances of success of this policy objective. Therefore considerations of addressing the internal and external balances of the economy; outside the currency mix with a view to improve productivity could bring long term solutions. The government of Zimbabwe is urged to pursue evidence based economic policies to guide the country`s economic trajectory.