(Last Updated on January 7, 2016 by Editor)
ZIMBABWE – Zimbabwe has plunged into an unprecedented post-dollarisation financial crisis as stock of currency continues to dwindle amid a tightening liquidity crunch that has all but destroyed individuals, corporates and government’s capacity to honour their obligations.
Since the country dollarised in 2009 by introducing a basket of hard currencies that included the United States dollar, the South African rand and the British pound — following the demise of the Zimbabwe dollar, which had succumbed to hyperinflation — the nation’s financial resource base has so critically thinned that both the public and private sectors are literally living from hand to mouth.
Highlights of the crisis have been in the form of government pushing back salary dates for its increasingly restive 500 000-strong workforce as all key revenue streams such as levies, taxes and duty, dry up. Industry and commerce are meanwhile struggling to fund recurrent expenditure which has seen many companies failing to pay salaries and wages for months on end.
And desperate to mop up as much revenue into its coffers, government has set up a ministerial taskforce led by the Home Affairs Ministry to try and plug leakages at the country’s porous borders where, it is believed, millions of US dollars in potential revenue are being lost as people evade payment of duty.
In the meantime, Diaspora remittances and loans from local banks are largely funding importation of luxury goods such as cars, while little is being invested locally.
Government is also planning to clear external debt arrears amounting to US$1,8 billion Economist, John Robertson, said the country is paying a heavy price for destroying its productive base.
He said borrowing for purposes of mitigating the cash squeeze would simply worsen the country’s indebtedness.
“Everything is working against us because we damaged our productive capacity,” said Robertson. “It’s very difficult to borrow your way out of debt because we are simply going to get deeper into debt. We should work our way out of debt by increasing our productive capacity and not borrow our way out of debt.”
Unlike before the Zimbabwe dollar went out of circulation, when the country could print more bank notes to meet demand for cash, this time around the country is in serious quandary because it can only increase liquidity through borrowing, increased foreign direct investment (FDI), increasing exports, balance of payments support and foreign aid, among a cocktail of options.
However, as things stand, the country is constrained from borrowing owing to an already ballooning debt at a time when the nation is struggling to put right its balance of trade characterised by a serious trade deficit.
Robertson described the prevailing situation as tenable, but only if the powers-that-be adopted sound economic policies.
“The issue here is; we either earn or borrow our way out of this situation…We have destroyed our chances to borrow by not paying back what we borrowed and we have been damaging our productive capacity through such policies like the land reform. There is no security of tenure for the indigenous people who own land… Indigenisation, for instance, does not crate anything, but simply distributes the little that is there… If you produce less you earn less…We have become dependent on the Diaspora and that money is getting less and less especially with the weakening South African rand,” he said.
Last year, Zimbabwe exported US$3,4 billion worth of goods against US$6,3 billion in imports, resulting in a US$2,9 billion trade deficit, according to the 2016 National Budget, which has projected a marginal increase in exports to US$3,7 billion and slight decrease in imports to US$6,2 billion in 2016.
Lack of competitiveness for Zimbabwean products has also significantly affected exports, with the Confederation of Zimbabwe Industries (CZI) urging the country to lower production costs that are currently affected by high labour costs and obsolete equipment, among other constraints. “If we are not exporting enough, then we won’t get the necessary cash inflows…But we need to lower our production costs,” said CZI president, Busani Moyo, who is advocating for industry to be allowed to cut costs by reducing wages, among other measures.
Moyo who said, in an interview, that there are no silver bullets to the country’s cash crisis, recommended a cocktail of measures
such as policies that encourage foreign direct investment (FDI), urging Zimbabweans in the Diaspora to remit funds through formal channels, and for the banking sector to increase lending in the economy.
FDI has largely been elusive due to policy inconsistencies, with the indigenisation policy having been a major hindrance.
“However, perception does more harm to our efforts more than the reality on the ground,” Moyo observed.
While Finance Minister, Patrick Chinamasa, has noted: “The projected increase (in exports) is on account of the expected improved performance of minerals, namely gold, nickel, diamonds and ferro chrome, chrome ore and fines; tobacco and horticultural produce.” But the global and local state of affairs is this year set to dictate otherwise. financial gazette.