UNDERLYING tensions between President Emmerson Mnangagwa and one of his deputies, retired General Constantino Chiwenga, over power struggles, risks distracting the new administration from tackling a plethora of structural challenges besetting Zimbabwe’s frail economy.
Mnangagwa, whose poll victory was upheld by the Constitutional Court, has an uneasy relationship with Chiwenga whose political manoeuvres since last year’s military coup that toppled Zimbabwe’s long-time leader Robert Mugabe suggest he harbours presidential ambitions.
Commentators say the differences between Mnangagwa and Chiwenga may render government dysfunctional. It comes at a time Zimbabwe is battling an acute liquidity crisis, massive company closures, widening trade and budget deficit and a ballooning foreign debt overhang, which has shot up to US$1,2 billion, among other deep-seated economic challenges.
The southern African country is also reeling from the effects of dwindling investment in the aftermath of a disputed poll.
Key among Mnangagwa’s priorities would be tackling the debilitating liquidity crisis, which escalated when Mugabe introduced a surrogate currency supposedly trading at par with the US dollar. Now, barely two years after the central bank introduced bond notes, the fiat currency has lost more than half its value, heightening speculation and fears among the populace that Mnangagwa’s administration, riven by discord, could be sleep-walking the economy into hyperinflation last experienced in 2008.
The foreign currency shortages have resulted in massive arbitrage and rent-seeking behaviour as the US dollar now has multiple exchange rates in Zimbabwe.
Coupled to that, Mnangagwa will have to pull up his sleeves to deal with an external debt overhang of US$1,2 billion which is nearly 25% of Gross Domestic Product (GDP). During Mugabe’s tenure, Zimbabwe abandoned the Lima Plan, which was crafted to help the southern African country extinguish its debt stock while paving way for fresh lines of credit.
International finance institutions have proposed a raft of structural reforms which Harare has to adopt to unlock fresh lines of credit critical towards stabilising the country’s fragile economy.
Mnangagwa — who was hoping to win a clean mandate in the July 30 elections but whose disputed victory has complicated matters — also faces the daunting task of arresting a widening budget deficit which stood at US$225 million during this year’s first quarter, triggered by government’s profligacy. According to a Reserve Bank of Zimbabwe 2018 first quarter report, government had cumulative revenue collections of about US$1,2 billion, against total expenditure outlays of US$1,4 billion, resulting in the yawning budget deficit.
The issuance of Treasury Bills (TBs), which government has largely relied upon to service an unsustainable budget deficit, has been cited by investment analysts as central to Zimbabwe’s economic problems. This has driven the demand for scarce foreign currency, as well as creation of excess money supply, which is largely in the form of Real-Time Gross Settlement (RTGS) and mobile balances.
Mnangagwa, widely regarded as a pro-business leader unlike his predecessor also has to plug the widening trade deficit, which peaked to nearly US$1 billion in the first four months of 2018, which is far higher than the same period last year when it stood at US$603,1 million. This means that the deficit has widened by 65,61% compared to the same period last year.
The central bank noted that the external sector position has remained considerably under pressure on account of deep-seated structural challenges of fiscal constraints, current account deficit, limited access to foreign finance, debt overhang, limited supply of ethanol for blending and, more recently, the jump in international fuel prices.
The galloping deficit provides ample evidence that Mnangagwa’s administration is yet to find the right medicine for the trade malady.
The grim statistics are a far cry from government’s repeated mantra that the economy is on the mend since Mnangagwa was first inaugurated in November last year following the millitary coup.
His administration, which has adopted the slogan “Zimbabwe is open for business”, has been at pains to report progress, but the characteristics of the economic crisis that permeated Mugabe’s catastrophic rule persist.
Commentators say Mnangagwa’s government, which is bound to gravitate towards factional lines characterising Mugabe’s ruinous 37-year rule, also faces the stern test of crafting a raft of measures to deal with socio-economic problems ranging from spiralling unemployment, deteriorating health and educational facilities and rising commodities prices on the domestic market among other challenges.
“Mnangagwa has a tough balancing act of competing political and economic priorities. On one hand, he has to ensure that he is solidly in power in spite of his deputy’s (Chiwenga) glaring ambition and mending the economy,” a government source said.
“We will see whether Mnangagwa will prioritise politics or address the structural problems haemorrhaging the economy.”
Financial analyst Persistence Gwanyanya, contends that Mnangagwa faces the unenviable task of implementing austerity measures if he has to revitalise the economy.
“Economic diagnosis has it that Zimbabwe today is faced with an unbalanced economy typified by low levels of production and exports, against disproportionately high levels of consumption, which has resulted in bloated import levels. This economic imbalance is largely seen as the source of all other economic problems, thus calling for concerted efforts to rebalance the economy through increase in production and exports, and a downward adjustment in consumption and imports. This adjustment process is not as simple as it appears and that is where the idea of reforms is necessary,”