WONDERS never cease. Just when you thought we have witnessed enough absurdity for one lifetime, a new quasi-currency has been created: RTGS nostro.
On Wednesday this week, the Finance ministry announced a US$75 tax-free allowance for all civil servants. The following day, it emerged the workers would be unable to withdraw the hard cash; instead, they will be issued with electronic cards to make purchases through swiping. The best name for this strange quasi-currency is “RTGS nostro”. It is an oxymoron that powerfully illustrates the absurdity of unworkable economic policies. We have come full circle from the “casino economy” days.
This knee-jerk “solution” has been prompted by fears of civil unrest. We must see it for what it is.The broke government is essentially taking a gamble. As we will soon witness in the next three months, the idea is to conduct an experiment to figure out whether Treasury can sustain a United States dollar-denominated wage bill. With many businesses now swiftly abandoning the Zimbabwean dollar and pegging prices exclusively in US dollars, the official calculation is that the public will be lured into retrieving the forex stashed under the pillow and inject it into circulation.
I have outlined the pitfalls of this move on my Twitter handle (@BrezhMalaba). It is useful to reiterate the matter here. This gamble may buy the government some breathing space for a couple of months, but as long as economic governance issues and the confidence conundrum arising from a political legitimacy deficit are not comprehensively addressed, this will provide only temporary respite.
We can apply the same logic to the government’s decision to introduce a forex auction system. Treasury says the new auction platform — which replaces the utterly dysfunctional arrangement which was based on an unrealistic 1:25 fixed exchange rate — will bring “transparency and efficiency”.
In the absence of a massive injection of forex by way of generous offshore lines of credit or an outright economic rescue package from abroad, where will the money come from? Well, Treasury is hoping to force exporters to sell their forex onto the official market within 30 days. This approach is fraught with complications.
Trust issues will come into play. For a while, exporters have been made to believe that the rule which protected them from forced forex liquidation would last. Here is the problem: Now that exporters have brought in the forex, the government is suddenly backtracking on its promise. In one fell swoop, business confidence is obliterated.
To keep their heads above the water in this perilous economy, some exporters may be tempted to resort to unorthodox survival tricks. The exporters may under-invoice exports while importers will over-invoice imports. During that 30-day window, exporters may devise ways of creating phantom “imports” as a pretext for siphoning out the money. Eventually, the nation must come to terms with two scenarios: either the goods will drift towards the parallel market as companies sidestep the ruinous price disparities, or the US dollar prices will be inflated. By throttling the exporters, the government will soon realise that these unworkable policies could catalyse implosion, with devastating consequences.
In any case, the so-called forex priority list will mean that not all companies can be allocated hard currency. The parallel market for forex will thrive. Amid the ensuing chaos, only a select few connected elites will have access to cheap forex. What I am writing is nothing new. We have witnessed all this before.
The government is tinkering with the symptoms. The elephant in the room is that the Zanu PF government is incapable of reform and public confidence has hit rock bottom.
The country is on edge. There is an undeclared suspension of civil liberties. More than half the population faces starvation. Police and soldiers are arbitrarily barring people from venturing into the central business districts of major cities. The security forces have dismissed “rumours of a coup” but their behaviour does not inspire confidence. This week, police commissioner-general Godwin Matanga told Parliament his officers are “operating under a very dangerous situation”.
All this means what? A tragic failure of leadership.