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AuthorChigumira, Gibson ; Mpofu, Sehliselo ; Matsika, Wellington
SubjectMonetary Policy
Date of Publication2013
PublisherZimbabwe Economic Policy Analysis and Research Unit (ZEPARU)
Number of Pages48 pages
Geographical CoverageZimbabwe
KeywordsZimbabwe Dollar, Exchange Rates, Multicurrency systems, Dollarization
AbstractIn 2009, the Government of Zimbabwe partially liberalized the capital account. However, in the multicurrency system that was adopted in February 2009, some restrictions on the capital account have remained in place. This study investigated the effectiveness of the capital account restrictions on business operations and the effectiveness of these restrictions in ensuring that individuals and corporates keep money onshore. In doing this investigation, a desk review of the catalogue of exchange controls, other capital account restrictions and policies that are still in place was done. Key stakeholder views were obtained through face-to-face interviews (See appendix1for the list of respondent institutions). The outcomes of the investigations suggest that while controls are beneficial in keeping money in Zimbabwe, for some business sectors, these controls have hindered access to investment diversification and product offering, have increased risk concentration and reduced competitiveness. It could be concluded that given the prevailing macroeconomic and political conditions in the multicurrency period, Zimbabwe is still not ready for full capital account liberalization. High levels of political risk and uncertainty, in particularly relating to the implementation of the indigenisation and economic empowerment proposals with regard to company ownership, and the on-going process leading to national elections, continue to act as a major disincentive to inflows of foreign investment and an incentive for the externalisation of domestic savings. In the short-term, full liberalisation of capital controls would almost certainly lead to a capital outflow that would reduce the funds available for investment and could jeopardise the stability of the banking system. Zimbabwe needs extensive policy reforms that will improve the economic and business environment, addressing for instance, the prevailing fiscal challenges, the foreign debt burden, banking sector fragility, the underdeveloped capital market, and strengthening security for property rights. Capital account liberalisation should form part of this reform process, and be implemented gradually to integrate Zimbabwe into regional and international capital markets at the same time as improving investor confidence.
Copyright HolderZimbabwe Economic Policy Analysis and Research Unit (ZEPARU)
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Filesize729819 MB
File FormatPDF
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