HomeCommentLiquidity crunch: A flashback to 2008

Liquidity crunch: A flashback to 2008

WANANCHI, the Oxford Concise Dictionary defines the word hubris as excessive pride or self-confidence.

Wananchi on Friday Tendai Biti

In the first 100 days of the new Zanu PF government after elections, the citizen has seen a lot of hubris, but which is hollow and unfounded. There has hardly been any second for a honeymoon or a little moment for celebration. Not that there was ever reason for it. One does not celebrate stolen spoils.

But it has been an incredible 100 days that has invited an intense debate of the ability of the “Revolutionary Party” to govern. So far it has failed the test.

It is far too easy to rig an election, but there are other things — the economy and the welfare of the people — that are beyond the shenanigans and dirty clutches of Nikuv. The “Revolutionary Party” will know this.

In the last three months, chickens have been coming home to roost, with excuses fast disappearing — there is no more MDC to blame or even to help them out.

The tired gerontocracy — a form of oligarchical rule in which a polity is run by leaders who are significantly older than most of the adult population — is thoroughly exposed in the full glare of publicity, and no amount of liposuction or botox can hide the reality of the present socio-economic situation in the post-election period.

We have a serious crisis, an extremely bad crisis of governance, crisis of legitimacy and a crisis of expectation rocking the economy and the country.

Even for a party that has had more than nine lives, for a party that has been heteromorphic, that is able to change and shift into anything and everything at the same time, the sense of foreboding is nigh. The feeling that indeed after the victory party there could be no ruling party is growing.

Never mind internal canibalisation, indeed the cost of closed-minded insularity, the critical issue is the economic tailspin dogging the country. All is not well in the state of Rome.

The past few months have seen a massive evaporation of business confidence, productive activity and collapse of economic recovery which had begun in 2009.

That 300 workers are being retrenched a week alone is a sign of the massive contraction of the economy and its attendant decline.

Retrenchments, company closures and capital flight have been a consistent feature of the post-election period. That trend has been confirmed in the form of serious reductions in revenue being collected by government, the exponential accumulation of domestic arrears and widening balance of payments position.

Many will wonder why when all other indices are deteriorating, inflation is in fact on the decrease. The simple truth of the matter is that often when there is no economic activity, when domestic demand collapses, inflation, in fact, recedes. It’s called stagflation.

Zimbabwe is in middle of this phase right now. It is a phase of inertia.

The state of the balance of payments makes Zimbabwe appear like some economic backwater or a little tinpot outpost of economic mismanagement. There has hardly been any meaningful capital inflows after the elections, and instead capital is jumping ship in full flight. So the capital account is in distress.

But it is the current account that is in a mess, reflecting the deep structural nature of the present crisis. This is no temporal aberration.

Up to August, imports have been around US$5,6 billion against exports of US$2,3 billion, resulting  in a trade deficit of roughly US$3 billion. Experts like John Robertson calculate that at least US$12 million per day is being funnelled offshore to finance imports. The state of the country’s current account is what physicians would call permanent haemorrhaging.

It cannot be patched up overnight. It is a structural problem reflecting a collapse of the productive sector. It is a supply-side issue demanding supply-side solution.

Tied to the desperate balance of payments problem is the current liquidity crunch. There is no money in the banking system and the economy.

Banks are over-lending to the extent of loan-to-deposit ratios well above 90% and non-performing loans scaling towards 15%. The liquidity crisis is so bad that there are echoes of 2008.

Banks are now limiting cash withdrawals, telegraphic transfers are now taking longer and cash at ATMs is scarce for big banks while totally unavailable for smaller ones. The critical liquidity situation is both a monetary and fiscal crisis.

As a monetary issue, it reflects the challenges of dwindling amounts of broad money supply (M3) in an economy where seigniorage or quantitative easing is impossible. That is why in some quarters they are now embarking on an ill-advised and suicidal call for the return to the Zimbabwe dollar.

But the bottom line is the liquidity challenge is less a monetary issue than it is a fiscal issue. There is no production; there are no meaningful exports, so naturally there is no liquidity and wealth being created.

We are hunting and catching a mouse, but feasting as if we have killed an elephant.  It simply does not work — you must eat what you kill!

These macro-economic challenges pale into insignificance when measured against the scale of other broad problems which need redress and urgently so. These are troubles of unemployment, the shortage of water and power, wage bill, agriculture revival, domestic debt, sovereign debt, de-industrialisation, collapsing social services, lack of foreign direct investment, lack of domestic savings and systemic banking sector vulnerabilities, just to name a few.

The Zimbabwe Agenda for Socio-Economic Transformation (ZimAsset), just another empty economic blueprint, will not address these problems.

What is needed beyond these vacuous blueprints is serious reflection required to resolve these structural issues and come up with lasting solutions.

Herein lies the problem: The real and biggest challenge facing the nation is leadership. There is dearth of leadership with the craft-competence and vision to tackle the present challenges.

What does this mean? It means the present tumbling of the economy is a vote of no confidence in the new post-election government by investors and the markets, and inevitably citizens. What is the solution? It is both a political and economic issue. Government needs to start focussing seriously on these issues before it’s too late.

Biti is MDC-T secretary-general, former finance minister and lawyer.

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