On Wednesday, Reserve Bank of Zimbabwe governor John Mangudya released the monetary policy statement, whose main objective he said is to “present policies that stimulate the national economy with a vision for Zimbabwe to regain its status of being the breadbasket of Africa”.
Candid Comment,Brezhnev Malaba
The statement provided a few glimmers of hope — which is no mean feat in these dreary times. However, by and large, Mangudya drove the point home that the country’s macro-economic fundamentals remain precarious.
A sentence caught my attention.
“The current account deficit continues to be mainly financed through private sector offshore loans against the backdrop of subdued direct and portfolio investment in the economy.”
The central bank chief is telling us, without batting an eyelid, that the gap in Zimbabwe’s current account is financed by the private sector’s offshore loans. This is remarkable.
Private sector foreign loans are the major source of liquidity in the economy since the adoption of the multi-currency system in 2009. While some may see the private sector as a knight in shining armour, the unpalatable truth is that the country is sinking deeper into the quicksand of debt.
The latest statistics show that in 2016, total exports were US$3,3 billion while imports stood at US$5,3 billion, leaving a negative trade balance of US$1,9 billion. Although the current account deficit is expected to narrow down considerably in the next couple of months on the back of what is promising to be a bumper harvest of maize and tobacco, the gap is still unacceptably high.
It is one of the grotesque ironies of the Zimbabwean economy that the private sector is endlessly frustrated by the government, yet the little liquidity that still exists is a result of the tireless efforts of the private sector. The government’s hostility to the private sector is unnecessary, ill-advised and retrogressive.
Private sector loans have kept this broke government afloat. But consider this: after crowding out the private sector on the local financial market, the same government is only too eager to benefit from offshore funding obtained by companies. This is unsustainable.
What the beleaguered economy needs are policies and laws that support private sector investment and growth. Zimbabwe’s economy cannot survive perpetually on burdensome loans.
We are behaving like a drug addict who refuses to kick the habit, even when the writing is clear on the wall.
The idea that the country can endlessly finance the current account deficit through irresponsible borrowing is catastrophic. As experience has taught us, clearing foreign debt is tough and cumbersome.
Before the economy can thrive, production must be ramped up, exports boosted and the government has to desist from enacting medieval laws that spook investors. Zimbabwe lacks competitiveness.