‘RBZ Money Printer Will Run Overtime’

“We do not have any one way of dealing with Zimbabwe,” said the International Monetary Fund (IMF)’s acting director for the African department Benedict Christensen last month.

 

She was not referring to the sorry state of the economy but the way in which the authorities continue to implement policies that are sinking the economy.

She was talking about the government’s over-reliance on printing of money and domestic borrowing, all of which are key drivers of inflation.

Now they look set to break their own record in the face of salary and allowance hikes awarded to civil servants and war veterans this month.

Teachers’ salaries were doubled from $3 billion to $6 billion this month while war veterans’ allowances rose from $1,6 billion to $9 billion.

With a civil service of 200 000 members and war veterans whose number ranges from 30 000 to 40 000, government now faces a tall order as its wage bill is set to clock $2 quadrillion this month.

With a waning revenue base government is likely to increase its reliance on the printer to fund the salary hikes.

There is no doubt the wage hikes will be inflationary.

Both the Reserve Bank of Zimbabwe (RBZ) and the IMF have agreed that money supply has been the major driver of inflation in Zimbabwe.

And inflation for its part has driven government’s domestic borrowing to astronomical levels.

Economists say the latest wave of increases will push inflation to unprecedented levels. Eric Bloch, an economist, said government would attempt to borrow but was likely to be unsuccessful in its bid.

“Government will try to source money from the domestic market. The problem is government’s poor credit-worthiness,” said Bloch.

“They will have to turn to the RBZ for money and the RBZ simply prints money to lend to government.”

Economic commentator, John Robertson, said lenders in the domestic market no longer have the capacity to meet the needs of government.

“Government has slowly been pinching away the nation’s savings through very low interest rates, well below inflation,” Robertson said.

“They are their own victims. No one has enough money to meet their borrowing needs,” he said.

The cash strapped government borrowed a staggering $5,2 quadrillion in just two months.

The central bank governor, Gideon Gono, last week revealed that the latest domestic debt figures now stood at $6,8 quadrillion.

The additional $2 quadrillion that government will require every month to pay for salaries and allowances will increase money supply to unprecedented levels and make inflation shoot through the roof.

The last inflation figure was availed in January when inflation stood at 100 580%. The 165 000% credited to February was unconfirmed.

The money supply figure has been more elusive. It was last released in December when it rose to 64 113%.

“I imagine that money supply should be almost as equal as inflation,” Bloch said. “I think is has grown by an additional 20 000% on top of the 64 113% recorded last December.”

During his first quarter last week Gono said the coming period would be very inflationary.

A breakdown of the payments shows a dire situation. Teachers alone, numbering between 90 000 and 100 000, will need an estimated $600 trillion for their May salaries.

The rest of the civil service looks set to get $850 trillion while war veterans’ allowances will see government forking out over $400 trillion a month to push the total to $1,8 quadrillion.

The tally is not inclusive of operating expenditures to finance fuel, electricity and food imports, capital expenditures, lease of buildings, running of hospitals and operation of vehicles. It does not include preparations for the presidential run-off. Then there is the huge interest on the existent debt.

Government’s woes are not over. They face the very real prospect that teachers will continue to strike until they are awarded the $18 billion a month salaries they are demanding.

Apart from the bloated wage bill there is also central bank’s quasi-fiscal operations like Agricultural Mechanisation Programme, Agricultural Sector Productivity Enhancement Facility, Basic Commodities Supply Side Intervention, are some of the programmes that the bank has embarked on.

Oswell Binha, chairperson of the Harare Chamber of Commerce said unnecessary expenditure has led to hyperinflation.

“Unwarranted public expenditure to cover deficits in a national production system that we business could easily fill were it not due to the lack of foreign currency, has been a major cause of hyperinflation,” Binha said.

“Government will soon have to learn the hard way that they might have the authority to do as they please in every sector of the economy and control almost everything but they are not in charge of inflation,” Robertson said. “Inflation is the one thing they cannot control and have failed to do so.”

Progressive Teachers Union of Zimbabwe secretary-general Ray Majongwe said the $6 billion teachers had been awarded was far from adequate and said they would push for an $18 billion monthly salary.

“We are not holding government to ransom,” Majongwe said.

The situation could become more critical in the next few months because of the grain deficit Zimbabwe has. Government will need to import thousands of tonnes of wheat and maize because the resettled farmers have once again failed to produce enough.

The biggest problem however is that the current global food shortages mean that Zimbabwe will have to buy the wheat and maize at very high prices.

With virtually nothing in the foreign currency reserves the government will inevitably have to print more Zimbabwean dollars to buy the little foreign currency on the black market.

By Kuda Chikwanda and Jeslyn Dendere

 

 

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