|The Public Accountants and Auditors Board has recently considered Zimbabwe a hyperinflation economy / Photo by Janusz Pieńkowski via 123rf|
The Public Accountants and Auditors Board (PAAB), a statutory body tasked to regulate the accounting and auditing standards in the Southern African country, has recently considered Zimbabwe a hyperinflation economy.
IAS 29 for hyperinflationary economies
In its official statement, the PAAB said that entities situated in Zimbabwe should now apply the International Accounting Standards (IAS) 29 in their financial reports. IAS 29 applies when the functional currency of the entity is that of a hyperinflationary economy. By allowing IAS 29 to be applied in Zimbabwe, it indicates the acknowledgment of authorities that the country has indeed entered into hyperinflation. This is Zimbabwe’s second hyperinflation within two decades.
Zimbabwe’s first hyperinflation and period of currency instability
Around 2005, Zimbabwe experienced its first hyperinflation. The currency instability was at its peak in 2008 at 500 billion percent, reports economics and finance news platform Fin24. The country has likewise abandoned the Zimbabwean dollar and uses a multi-currency system, which is dominated by the US dollar. However, concerns were raised by mid-July with the speculations that the country may yet again enter a new period of hyperinflation. This month, it was confirmed that some of the factors that led the country to another hyperinflation period were corruption, the printing of electronic currency RTGS dollar, and the unstable import bill.
|Store owners admit that they may go “out of business” if they don’t change the prices / Photo by Lucian Coman via 123rf|
“It’s a nightmare.”
“It’s a nightmare,” said Isaiah Macheku, a citizen from Zimbabwe. He said that every time he now goes to the store, he prepares for a shock as hyperinflation is causing quick changes in the prices. The man shared that he earns $24 from wages. Before the hyperinflation period, the amount was enough to pay for his family’s needs. Today, he can sometimes buy only four kilograms of meat for the same amount.
According to the International Money Fund, an international organization consisting of 189 countries working to foster global monetary cooperation, Zimbabwe now has the second-highest inflation rate globally. The country with the highest inflation rate in Venezuela. Ten years ago, the southern African nation also had a high inflation rate, yet hyperinflation is now on a whole new level. It’s destructive.
Economist John Robertson has also pointed out via broadcasting organization VOA News that anyone who is thinking that there is a “solution in sight” in Zimbabwe must be brave. Even the government officials of the country don’t want to reveal the real causes of the problem and they prefer not to fix the real issues. The economist, however, believes that one of the real causes of hyperinflation in Zimbabwe is that their government is spending more than the available money than it currently has.
How prices are changing
In Zimbabwe, shoppers are going to stores not just bringing their money but also notebooks, mobile phones, and electronic calculators to estimate how much they will be paying or spending. In an almost empty market, more people are taking photos of the prices than actually buying the products. One consumer named Marrianne Hove said that she was taking a photo of the price of a product to send it to her husband so they can decide “fast” before the prices go again go up. Some do a price estimate and call other members of their family to ask for the products that they have to prioritize or buy now.
Some businesses in Zimbabwe put up prices only when the shoppers are already lining up to pay for the items. Store owners admit that they may go “out of business” if they don’t change the prices. Other businesses are reducing their risk by limiting the things they have to sell.
Electricity tariff increased to 320 percent
As the crisis deepens and some families are forced to live on a single meal per day, the country has quadrupled its electricity tariff amid the power shortages in some parts of Zimbabwe. The Zimbabwe Energy Regulatory Authority (ZERA) said that this is necessary to increase the price of electricity as inflation soars. This is to let the state power ramp up its production and improve the supplies. The increase in power costs angered the Zimbabwean citizens as they have also seen a sharp increase in basic good prices and fuel while their salaries have stayed the same.
Inflation rates: Zimbabwe and South Africa
Zimbabwe is a landlocked country in Southern Africa, thus, there is a need to compare and understand their inflation rates. The inflation rate of Zimbabwe was recorded at 20.85 percent in October 2018, 56.9 percent in January 2019, 75.86 percent in April, 230.54 in July, and 288.5 percent in August. It is now at an all-time high, based on data provided by economic indicator platform Trading Economics.
Meanwhile, Zimbabwe’s food inflation was at 393.12 percent, consumer price index at 246.70, and CPI housing utilities at 154.80. The Organisation for Economic Co-operation and Development, an intergovernmental economic organization founded to stimulate world trade and economic progress, also reports that South Africa’s annual growth rate of inflation is at 4.9 percent.