Zimbabwe's retailers warn of store closures over exchange rate

HARARE (Reuters) - Top Zimbabwean retailers have warned of potential store closures if the government insists on the use of an official exchange rate they deem overvalued and damaging their competitiveness.

Five months after its launch, Zimbabwe's new gold backed currency ZiG, which stands for Zimbabwe Gold, is under pressure and has lost almost 80% of its value on the black market - where it trades between 20 and 26 ZiG to $1.

Official guidelines require that formal retailers set prices based on the official exchange rate of 14.8 ZiG to $1 or face fines.

But retailers, including OK Zimbabwe, Spar and TM Supermarkets - a local unit of South Africa's Pick N Pay, argue that this overvalued rate is making their products more expensive than those in informal shops, driving away customers.

"The situation is clearly untenable and will lead to company closures if authorities do not intervene with policy measures to protect the formal retail sector," Retailers Association of Zimbabwe (RAZ) said in a letter addressed to the Ministry of Finance and seen by Reuters.

The retailers said while they had to adhere to the official exchange rate as required by authorities, their suppliers are charging black market rates, forcing retailers to hike prices.

"Implementing a pricing model that reflects real-time market exchange rate fluctuations can help us remain competitive while managing costs," the retailers said.

The treasury could not be immediately reached for comment.

The ZiG is the country's sixth attempt at a stable currency in 15 years and economists say its devaluation points to lack of public confidence in the new currency.

(Reporting by Nyasha Chingono; Editing by Olivia Kumwenda-Mtambo and David Evans)