ZIMBABWE is facing a debilitating liquidity and cash crisis, which has seen thousands of people sleeping in the freezing winter cold outside banks in a desperate bid to beat snaking queues for money as most financial institutions limit cash withdrawals to as low as US$100 a day. Zimbabwe Independent deputy editor Faith Zaba (FZ) spoke to Finance minister Patrick Chinamasa (PC) on the cash crunch and measures government is putting in place to deal with the situation. Find below excerpts of the interview.
FZ: The country is facing a critical liquidity crunch and cash crisis, how did we get to this position?
PC: What you need to understand is that the only source of our foreign currency is exporting. The other source, apart from exports, is diaspora remittances. If we had been in the global economy, which we are not yet because of the sanctions and the debt overhang, the other source of US dollars or foreign currency would be lines of credit.
The moment the US dollar started appreciating and the South African rand depreciating, almost in inverse proportion, that was the start of our problem.
FZ: How did the currency fluctuations contribute to the crisis?
PC: We then became a very expensive tourist destination. South African tourists, who make up about 70% of our tourist arrivals, dried up overnight. Our exports became expensive which meant we ceased being competitive. Over and above that, commodity prices on the international markets are falling. This means less foreign currency coming in from our major export products — tobacco, platinum, gold, ferrochrome and diamonds. Of course added to this, we are registering more imports than exports, which has exacerbated the problem.
FZ: What is our current trade balance?
PC: We are looking at a trade deficit of some US$3 billion, roughly because our imports will be around US$6 billion and exports around US$3 billion. It is unsustainable. There is no other country like us that uses US dollars to finance domestic transactions to pay wages, buy tomatoes at Mbare Musika. All that combined created a shortage of cash in the economy. Some of that cash is not being banked so it is not in circulation. Some of our successes also contributed to our cash problem, largely arising from the fact that we are an economy that is cash-based. I will take the example of tobacco and gold.
FZ: How have the two contributed to the cash shortages when they are supposed to be part of our major exports?
PC: We have been able to push tobacco production from the level it had plummeted after the land reform programme from around 45 million kilogrammes to around 220 million kgs. If we take last year, the crop earned US$600 million, let’s say US$400 million went to small-scale farmers who were insisting that they should be paid in cash. That money is not coming into the banking sector, it is not circulating and clearly we don’t know where it is. This created problems for us. Then you take gold, since we decriminalised mining by artisanal miners, we have seen gold production shooting up from some 13 metric tonnes in 2013 to 20,1 metric tonnes last year due to the fiscal measures we took, like royalties and pricing. Of that, artisanal miners are contributing 40%, and they are all clamouring to be paid in cash and we are paying them in cash.
FZ: How much are you paying per month?
PC: I wouldn’t hasten to say, but I think it’s US$10 million a week and all that is being paid in cash in a currency that we don’t print, in a currency that is not going back into circulation, a currency that is used in financing domestic transaction. That has created the cash challenges we now encounter. Over and above that we don’t use plastic money. People don’t bank their earnings, whether it is from gold or tobacco, which is now why the Reserve Bank of Zimbabwe is coming up with financial inclusion to encourage those in those sectors to open up banking accounts so that they start the culture of using the banking system. We also believe that as they bank they will be able to build a track record so that in future they can access credit from those financial institutions.
FZ: How will the introduction of bond notes improve the cash crisis?
PC: What has been lost in the argument is that bond notes are an incentive to those who are exporting to encourage them to produce more.
FZ: How is that going to encourage them to be more productive?
PC: Because the bond notes are given as an incentive to tobacco farmers, for example. If they sell US$100 worth of tobacco they will get a US$5 incentive. That will encourage them to produce more so that we export more and have more foreign currency. What has also been lost from the measures the reserve bank has introduced is that the major thrust is to manage our foreign currency earnings and at the same time make a reduction to the import bill
FZ: How do you propose to reduce the import bill?
PC: It is already being implemented. When we get that foreign currency it must be reserved to purchase goods on the priority list. These are goods, services and commodities which are beneficial to our economy.
FZ: Like which ones?
PC: Like fuel, machinery, capital goods for retooling manufacturing, raw materials for our industry, just to name but a few. So the priority list will be geared to just purchasing only those goods, services and commodities which we think will reboot our economy. As we are doing so it also means that there will be no foreign currency to buy trinkets and useless things which in fact have caused the ballooning of the import bill.
FZ: Can you explain further how this is going to work?
PC: There is a priority list. The banks will say if you want to import, we will check if what you want is on the priority list and if it is not, then we will not give support.
FZ: Are you then saying that it will be mainly the bond notes circulating after their introduction?
PC: No, the bond notes are just an incentive relative to the volume of exports. If there are no exports there will not be issuance of bond notes. In other words, exports will be monitored through the central bank, which will give US$5 on top of every US$100 earned. That will encourage more production. As you know the bond notes are interchangeable with the US dollar just like the bond coins. The merit of the bond notes is that they can’t be externalised.
FZ: When I go to the bank and I want to withdraw my money, I get bond notes to transact locally, is that what you are saying?
PC: The bond notes will be alongside the US dollars. You will be given whatever is available.
FZ: But won’t we have a situation where we will have mostly the bond notes circulating, where if I want my money in US dollars, the banks will just give me bond notes?
PC: No, I don’t see that happening because the foreign currency is now being managed unlike right now where it is free for all. So in terms of availability, the bond notes are being issued commensurate with the volume of exports.
It is not free for all issuance of bond notes. If this year we export US$1 million, there will be at least US$5 million in bond notes put on the market, relative to the US$100 million which would have been exported so that they remain on par with the US dollar. By the way, this facility is backed by the US$200 million facility from Afrexim Bank in the same way the bond coins were backed by a US$50 million facility from Afrexim Bank. What we are saying when we say it is backed by this facility is that if you want your US dollars, Afrexim Bank is saying you will get them. People have nothing to fear.
FZ: The worry is that you are doing this as a precursor to printing money for elections, for an example, and in the process bring back the defunct Zimbabwean dollar.
PC: I am aware that there are concerns that we will print willy-nilly. We have already started discussions with Afrexim Bank, IMF (International Monetrary Fund), World Bank and ADB (African Development Bank) to explore ways of putting in place mechanisms that ensure that the issuance of bond notes are relative to the volume of exports. We are hoping we will come up with something. It is in our interest as Zanu PF to get into an election with an economy that is performing. The steps we have taken are going to make the economy perform.
FZ: How are you managing supermarkets to ensure that they bank all their proceeds?
PC: First we are now encouraging swiping. There are points-of-sale machines which have been distributed. We started with the big supermarkets, like the Mohamed Mussas, Ok Zimbabwe, Pick n Pays. We are going to monitor them and ensure that they bank their sales. So anything like hoarding of cash, especially in those supermarkets will not be lightly considered. We have also started the fiscalisation programme linking up big supermarkets real time, electronically with Zimra. This is being accelerated. As they punch the till, Zimra will be monitoring. Now we have real time link to Treasury. We have a dash board at Treasury, which tells revenues on a daily or weekly basis.
FZ: Aren’t company closures and job losses contributing to the loss of revenue as well? What are you doing as government to arrest this?
PC: There is no answer to all those questions, except a growing economy. People tend to look at issues in isolation, whether it is employment or whatever. All those things will be taken care of if the economy is growing. We are anticipating 1,1% growth this year. We should be growing at 7% or 8% or 9% sustainably for the next 10 years.
FZ: There are cases which we have reported where there are companies now involved in arbitrage on cash. What’s your comment?
PC: That is happening because there were no points-of-sale machines. Now that we are enforcing this, it means businesses have to bank their sales daily. The problem is that there are a lot of businesses with no bank accounts.
Not small businesses for that matter. Lots of businesses don’t open accounts, they don’t bank proceeds from sales.
Those are some of the challenges we need to tackle.
FZ: So what are you going to do about that?
PC: First we have to identify and make sure that they do the proper thing.
FZ: With all these cash shortages, wouldn’t it better to join the Rand Union and adopt the rand as the anchor legal tender. Is it something you are considering?
PC: For me it is not under consideration. I would not go along with that. Like I told you, we are in this problem because the US dollar is appreciating and we have no control over it. We cannot have a system where we are beholden to currencies over which we have no control. We cannot just be victims and remain victims. If we go with the rand, what would we do if it continues to depreciate, which will not be in our interest? What I don’t want is to adopt currencies increasingly, except in the context of the multicurrency regime.
FZ: As I listen to you speak, I get the impression that at the back of your mind you are contemplating the return of the Zimdollar.
PC: No no no, the Zimdollar is completely out of the question. The Zimdollar will only come if we get our macro-economic fundamentals right. Basically, we have to balance our budget, we have to have the right proportion of wages going to revenue, right proportion of revenue going to capital proportion, we need to get right our import bill and we need to build reserves. Most countries would have reserves of three months or four months and we don’t have that. You can’t then introduce your currency in that context. No need to fear, a lot of work needs to be done first. Apart from addressing the import bill and the structure of the budget, there is also the issue of production. We can’t introduce our own currency when there is no production. That was the problem with hyperinflation, too much money chasing too few goods.