The entrenched economics of shifting blame in Zim

IN his most recent speech President Emmerson Mnangagwa attributed the free-falling exchange rate, inflationary pressure and general economic decline to political factors, a narrative which government officials have been seeking to shape in recent months.

Respect Gwenzi

In a parliamentary caucus about a fortnight ago, Reserve Bank of Zimbabwe (RBZ) governor John Mangudya flatteringly attributed the currency carnage to spiritual factors, sensationally claiming that the Zimbabweans have become possessed with demons. These baffling remarks from the two most superior monetary principals are a clear demonstration that all economic logic has been suspended at policy level. The authorities have no idea as to why the economy is in a tailspin and also that the outlook is bleaker given their failure to diagnose and correctly prescribe policy remedies.

A quick look at the numbers shows that inflation will hit 1 000% for May, given the sharp currency depreciation on the parallel market while export receipts will fall below the US$4 billion mark given the Covid-19 outbreak and the impact of currency instability. Remittances will likewise come in at below US$1 billion this year against the backdrop of global lockdowns which have cost jobs and decimated incomes while the fiscal balance will be the worst in 10 years. That last point is premised on the logical deduction that more than 50% of the ZW$18 billion bailout package will be funded through base money, which is already nearing the ZW$15 billion mark even before the bailout. These collective fundamental economic indicators are partly country neutral (Covid-19) and partially endogenous, especially on money supply and currency.

Why then would the government twist the narrative and shift the blame to undefined spiritual characters and political nemesis? It is because this is the most convenient way of dealing with the crisis. It is the only way politicians buy time in power and perhaps succeed in swerving the populace.

During his 37-year rule, Robert Mugabe shaped a narrative crafted around sanctions positing it as the only driver of economic downturn. This is despite the illogical printing of money to finance the Congolese war in 1990s as well as the unbudgeted war veterans compensation package around the same period, which led to sharp economic collapse. The war veterans’ total package amounted to approximately 3% of the 1997 gross domestic product; and was not included in that year’s fiscal budget. The payments had the immediate effect of inflating the budget by 55% on the previous year. On a fateful Friday in November 1997, the Zimdollar lost 75% to the United States dollar as a consequence of these moves which defied economic logic. This was exactly two-and-a-half years before the US imposed the sanctions on the country.

Zimbabwe’s economic downturn in the past and today has more to do with policy mishaps and a lack of effective governance at national level than the hand of imaginary “detractors”. In 2009, Zimbabwe was given a new lease on life, albeit from a low base and, of course, other legacy concerns such as overhanging multilateral debt and sanctions, which indeed could have been cleared or forgiven, 11 years on. It is this writer’s persuasion that stability should precede growth and thus we cannot talk of increasing productivity when the ground is shaky.

When Zanu PF got a full mandate after winning the 2013 election, impatience kicked in as the new administration felt the rate of economic growth was low. In fact, the government found ways of injecting cash into the economy, through introducing an agriculture subsidy and industry recapitalisation through the Zimbabwe Asset Management Corporation. This period is known as the Treasury Bills era as the short-term paper grew to a high of US$7,8 billion as at October 2018, from just US$200 million in 2014. Realising that the rate of US dollar generation was way below the rate of growth in local money (TBs), the RBZ thought it could stimulate export production through the bond note as well compensate for the growing disparity in value. In all this one fact is apparent: the mismanagement of fiscal affairs has been at the centre of Zimbabwe’s economic demise, in the past and the present, and not the imaginary detractors the President refers to.

Gwenzi is a financial analyst and MD of Equity Axis, a financial media firm offering business intelligence, economic and equity research. — respect@equityaxis.net