The cash-strapped Zanu PF government has now become the albatross around the neck of the whole Zimbabwean economy.
BY TAPIWA MASHAKADA
The manner in which government tries to fund its revenue shortfalls, which is the result of its own profligacy and economic decline, is now affecting everybody in the country. It now appears as if when treasury sneezes, the whole country catches the flue. There are so many examples to this effect.
The current financial crisis has been sparked by government’s last ditch attempt to pay the last l towards the US$1,8 billion debt arrears to the International Monetary Fund (IMF), World Bank and African Developed Bank (AFDB), ahead of the World Bank Spring meetings in America. Finance minister Patrick Chinamasa hoped that by going to America with a clean bill, he would impress the multi-lateral institutions and unlock new lending. But all we know is that the resumption of official development and multi-lateral lending is a function of economic reforms, democracy, human rights and good governance. In short, its about measurable political and economic reforms. It is now very clear that the IMF and World Bank will not budge.
The cash shortages are also the result of some banks having over-subscribed to government treasury bills at the risk of their own liquidity. It is not known whether this was by design or by duress. The situation is made worse by the fact that most banks did not have sufficient amounts to recall from their Nostro (off shore) accounts. To make matters worse, ever since dollarisation, the Reserve Bank no longer plays its lender of last resort role hence the situation is quite critical.
Tobacco farmers have been victims of government’s predatory hands. At the onset of the tobacco selling season, government instructed all farmers to open bank accounts. Government lied that the opening of bank accounts would facilitate safe and secure payments to farmers within 24 hours. Little did the tobacco farmers know that the whole idea was for government to dip its fingers into the millions of dollars deposited into the farmers’ accounts. As a result, tobacco farmers cannot access their hard earned money. Some of the tobacco farmers are now stranded and have no money to go back to their rural homes. They have no money to pay their workers and no money to pay their debts.
All this has been caused by the government that duped them. Amidst all this confusion, middlemen are having a field day – buying tobacco from stranded farmers at very low prices. This is ripping off farmers.
In fact, government is now the great saboteur to land reform and economic recovery. Firstly, government killed cotton production by carelessly liberalising the sector which was flooded by contractors who paid peanuts to cotton farmers. Cotton production dropped from 80 % in 2006 to 15% in 2015. Secondly, government destroyed maize farming by GMB continually delaying payments to farmers. The Cold Storage Commission is dead. Dairy farmers (including Gushungo dairy) are struggling and are actually on the verge of collapse. Wheat production is now history. It is therefore sad that government is destroying the last pillar of agriculture -which is tobacco. Government has killed the goose that lays the golden egg thereby sabotaging its own land reform.
The duplicity by government has now been exposed. Yesteryear we were told that all our economic woes stem from sanctions. Now there is a very thin dividing line between sanctions and self-inflicted economic mismanagement.
ZimAsset is dead in the water. The state has been captured by a political class that is corrupt. Public procurement and parastatal tendering is now controlled by a small cabal that is connected to the ruling party. Corruption is no longer criminalised in Zimbabwe. People accused of corruption are roaming the streets of Harare freely. Rent- seeking has reached inexplicable levels in Zimbabwe. The US$15 billion dollar diamond heist is only but another statistic. NSSA lost US$14 million dollars in collapsed banks; NetOne is reeling from US$100 billion dollar scam perpetrated by its management. The list is endless.
Between last year and today, it is thought that government has issued TBs in excess of US$2 bilion dollars. Domestic debt now stands at US$6 billion dollars while foreign debt is US$10 billion dollars. This insatiable appetite to borrow has created a liquidity crisis on the market because government continues to roll over the TBs on maturity.
The other casualty of the cash-strapped government is the bank transfer system. The system works like this: payments are made through the commercial banks by transfers. These payments go through the Reserve Bank. Once they are at the Reserve Bank, instead of going through, they are raided by the State. The longer it takes government to reimburse the Reserve Bank, the longer the transfer takes to get to the creditor. This affects business confidence and affects trade. The result is that most suppliers will demand cash and as a result most businesses will collapse.
Insurance companies cannot insure trade transactions in the wake of delays in the bank transfer system. A typical example is that of Sinosure, the Chinese insurance guarantee company which has stopped insurance cover for all Chinese trade transactions to Zimbabwe.
It therefore goes without saying that the poor state of government finances is crowding out economic growth in Zimbabwe. This is the reason why under dollarisation, the economy should be open to business in order to attract fresh capital and through that increase money supply and liquidity. The other way to improve liquidity is through exports. But currently exports stand at US$2,5 billion dollars per annum compared to imports which stand at US$6 billion dollars. The rise in imports is exacerbated by the collapse of manufacturing due to lack of competitiveness and the depreciation of the Rand against the dollar.
The other source of liquidity would have been the informal sector whose Gross Domestic Product (GDP) is now estimated to be US$17 billion dollars per annum. But the tragedy is that the activities of the informal sector are hardly captured in the national accounts. Formal or official GDP is now only US$13 billion dollars per annum.
The diaspora is another huge source of capital. The combined annual Diaspora GDP is US$23 billion dollars yet Zimbabwe officially receives a paltry US$1billion per annum. Again this is due to the difficult conditions of doing business and the failure to give diasporas their constitutional rights such as the right to dual citizenship and the right to vote.
In the absence of new loans from the Bretton Woods institutions or FDI, the economy will continue to suffocate due to the chronic liquidity crunch. Unfortunately, the promised mega deals from China and Russia have not been forth coming.
The one thing that is lacking is a clear trajectory on the question of leadership. This reduces domestic and international confidence in the future of Zimbabwe.
At this rate, government could anytime from now fail to pay its 550 000 strong civil servants ‘wage bill. It is ghastly to imagine what could happen between now and 2018. In order to avert a potential shut down, the situation beckons early free and fair elections for the sake of Zimbabwe. For it is only under free and fair elections that the new will replace the old.
Dr Mashakada is an Economist & Former Minister Economic Planning & Investment Promotion, MP for Hatfield. These New perspectives are co-ordinated by Lovemore Kadenge, President of the Zimbabwe Economics Society (ZES) email firstname.lastname@example.org and cell +263 772 382 852