FINANCE and Economic Development minister Herbert Murerwa must be experiencing nightmares caused by the current cash crisis bedevilling the country.
Murerwa’s ministry is supposed to supervise the Reserve Bank of Zimbabwe (RBZ), the body tasked with maintaining the country’s fiscal prudence.
Outgoing RBZ governor Leonard Tsumba, who was at the centre of the cash fiasco, seems to have escaped the hangman’s noose and the unfolding drama to take early retirement.
Insiders allege Tsumba was frustrated during his last days in office by political heavyweights – especially the young Turks in Zanu PF – who surround President Robert Mugabe.
They are alleged to have persuaded the president that the governor was too Western and easily swayed by the International Monetary Fund (IMF) and World Bank.
The IMF and World Bank, jointly owed more than US$450 million, were dumped by the ruling party and cash-strapped government after Washington became outspoken about Zimbabwe’s economic and political malaise – especially the controversial fast track land resettlement programme.
After much debate and regular disagreements with Zimbabwe, the IMF on June 6 suspended the country’s voting and related rights in the Fund.
In an apparent parting shot at Tsumba before his departure from the central bank was “advertised” in the media, Mugabe told the Sabc in an exclusive interview that: “There are those who demand bookish solutions to serious problems when we are in a state of war. We are going to overhaul the situation soon.”
Tsumba’s last public tour of duty came when he revealed that the RBZ was working overtime to print more money in a bid to inject $24 billion into the troubled money market where dealers were offloading $500 notes for $600.
Despite this promise, however, last week saw the reintroduction into the financial system of the old and sometimes soiled $20 notes in circulation during the 1980s but which had been phased out in the early 1990s following the introduction of new notes.
Economist John Robertson in an interview said there was nothing wrong with printing money if it was simply to replenish what had been depleted.
He said: “We actually need to print more if stocks have run out. However, we need to print higher denominations such as $1 000, $10 000 and even the $20 000 note because it probably costs the same as printing the $500 in circulation today anyway. Prices are going up everyday and one needs to carry a lot of money for shopping.”
Robertson said the immediate solution was to stop government’s “insatiable appetite for funds” from the central bank.
Zimbabwe’s domestic debt as at April 25 stood at $394,2 billion. The RBZ advance to government on that date was $36,8 billion.
Robertson said: “We should control inflation, control the huge budget deficit, and introduce fiscal discipline for the cash crisis to be solved, but I don’t see this happening any time soon.”
Economist and University of Zimbabwe Department of Business Studies head professor Anthony Hawkins said printing more money could increase inflation currently pegged at 300,1%.
He predicted that inflation would increase even further and reach 500% by year-end if belt-tightening measures were not immediately introduced.
Hyperinflation over the past decade has significantly eroded the value of money in circulation in Zimbabwe.
Before departing Tsumba admitted that the value of the Zimbabwe dollar was currently worth only two cents its 1996 level.
An increase in inflation from 15,5% in 1990 to 22% in 1995 necessitated the introduction of higher bank note denominations – the $50 note in March 1994 and the $100 note in January 1995.
The surge in inflation to 64,4% by June 2001 further increased the public’s demand for higher currency denominations and the RBZ introduced the $500 bill.
With inflation pegged at 369,2% Tsumba said the $1 000 note was on its way for customers.
Hawkins said while the new money would have solved the cash crisis, it would also result in goods escalating in price, as is the case presently.
Zimbabweans are carrying huge sums of money in their briefcases and vehicle boots just in case they scramble across scarce commodities such as cooking oil, sugar, maize meal, foreign currency and fuel.
Bulawayo-based economic com-mentator Eric Bloch said Zimbabwe’s financial system had gone too far to “collapse”.
He however said what was worrying were the regular and willy-nilly pay hikes dished out to the civil service, armed forces, police, medical practitioners and even village heads.
Some of these associations have received regular golden handshakes whenever they threaten to engage in industrial action if their demands are not immediately met.
Bloch said he wondered where the money to pay these individuals would be sourced from.
Robertson said Zimbabwe desperately needed financial support especially from the international community to survive.
He said: “Right now we need money from anybody who can give it to us. The IMF after all are very influential in all this.”
At the “eve of his departure” from the prestigious job, Tsumba, in an exclusive interview told businessdigest that the ultimate solution to the cash crisis was to reduce inflation to “sustainable levels”.
He said: “In an environment of hyperinflation the tendency is for the economy to transact on a cash basis. The transacting public will, therefore, hoard currency at home as opposed to depositing it in the banking system.
Rates of return on money deposits with banks are too low, relative to inflation.
“Higher deposit rates would increase incentives for the public to hold their money balances through the banks as opposed to stashing their cash in mattresses. The underlying solution is to bring economic certainty by reducing inflation through the stabilisation of inflationary expectations.”
Meanwhile the printing presses at Fidelity Printers and Refiners (Pvt) Ltd in Msasa and Bulawayo continue to mint and print billions every 24 hours.
Insiders said the RBZ was now faced with a shocking salaries bill resulting from overtime at Fidelity which is proving extremely difficult to pay.