In recent months, bond notes have lulled the government into a dangerous sense of security, but the chickens are coming home to roost and there is no denying the harsh reality of a problem that has now escalated into a full-blown crisis.
Zimbabwe Independent Comment
We have repeatedly raised concern over this. The International Monetary Fund (IMF) issued a statement this week, advising the authorities to adopt a comprehensive policy package to extricate Zimbabwe out of the quicksand of a man-made catastrophe. Bond notes are not the solution.
The IMF was blunt and straight to the point: bond notes are not a miracle cure for the multi-faceted malady which afflicts this country.
IMF African department director Abede Aemro Selassie told journalists in Washington DC that the fiat currency alone would not help Zimbabwe address its economic challenges.
“Zimbabwe is in a very, very difficult situation, as you know. There is a limited amount of foreign exchange inflows coming in and no monetary policy tool. So, they are in a difficult circumstance right now. We think that going down this one note route, in and of itself, will not address the challenges that the country has,” Selassie said.
It is vital to remember that bond notes, introduced in November last year, were never going to be a panacea to the country’s economic woes, considering the deep-seated nature of the structural problem.
The Reserve Bank of Zimbabwe (RBZ) has put $130 million worth of bond notes into circulation, but this amount of cash is woefully inadequate in solving the cash crunch. That is not the only headache; although the bond notes were pegged at par with the United States dollar, today they are trading at a considerably lower rate against the greenback on the parallel market due to arbitrage.
The answer to the severe shortage of cash is in economic revival and increased production. Industry must be resuscitated, derelict factories have to be restored and land, which is currently dead capital, must be made bankable.
RBZ deputy governor Kupukile Mlambo made a startling revelation at the ongoing 58th Zimbabwe International Trade Fair, highlighting the scope of the structural deficiencies in the economy and the paucity of decisive leadership to tackle the problem.
“The truth is that only 2% of our bank liquidity assets are in notes and coins. The rest are Treasury Bills and RTGS (Real-Time Gross settlement). Only 4% of our deposits at the moment are in cash yet demand is still as it was in 2009,” Mlambo said.
But in the quest to solve one problem, the government is creating a bigger problem. For a long time, senior officials have denied that the government is imprudently “printing” a phantom currency.
Finance minister Patrick Chinamasa has let the cat out of the bag by telling parliament that Treasury is effectively printing money by using RTGS to pay the salaries of civil servants. These salaries are now gobbling up 93% of revenue. Chinamasa knows, as well as everyone else does, that prudent economic management requires that government reduce the size of the wage bill to re-orient spending towards priority capital and social outlays. To the cash-strapped government, bond notes are now a quick-fix for the wage bill crisis. There could be no better illustration of leadership and policy failure.