By Daniel Chigudu.
THE US dollar, Zimbabwe’s main currency currently, is primarily for purposes of stabilising the country’s faltering economy.
Bond notes, on the other hand, were introduced to complement the short supply of the greenback, notwithstanding the general mistrust in the value of this quasi-currency.
The public’s growing scepticism with monetary authorities, coupled with the tumbling value of bond notes, is indicative of the country’s despairing need for a lasting solution around a permanent currency.
With about 70% of the adult population unbanked and at least 81% of the unbanked in rural areas faced with challenges of accessing cash to buy basic requirements, it is imperative that the top priority of the government should be financial inclusion and not exclusion as it stands.
It is worth finding the root cause of Zimbabwe’s economic problems and not to put measures that only address the symptoms.
The populace has lost confidence in financial systems articulated by monetary authorities, especially the introduction of Bond Notes.
Authorities have attributed the shortage of cash to inequalities between inputs and exports or overreliance on the US$ in a multi- currency system. Measures put in place by the apex bank on the 4th of May 2016 have been criticised by various stakeholders.
Sadly, parliament through the Chairperson of the Parliamentary Committee of Public Finance and Budget, Hon David Chapfika, said they were convinced by the apex bank that Bond Notes were good for the country’s economy on 19 May 2016. The public reaction was punctuated with fear and anxiety at such a decision meant to contain the cash crisis.
This fear was drawn from the 2007 to early 2009 when hard earned savings were lost to bearer cheques and hyperinflation.
Yet, for the success of any monetary policy, critical factors revolve around trust and confidence, which the political environment must address.
Strangely, the central bank pronounced the policy measures barely a few days after the International Monetary Fund (IMF) had issued its Zimbabwe Staff Monitored Programme Final Review Report in which it applauded the progress made by the government in promoting confidence in the financial sector. This raised a red flag to international financial institutions.
Paradoxically, there has been no transparency and accountability in the governance of the country’s resources coupled with illicit financial flows (IFFs) and externalisation being the order of the day. This is evidenced by diamond money and a report by the apex bank claiming that Zimbabwe lost US$3 billion through IFFs between 2009 and 2012. The country has a history of volatile takeovers of business establishments, something which scares away foreign investors.
The crisis is made worse by the government’s mopping up of liquidity through internal borrowings. This public borrowing by the government has issued in excess of two billion treasury bills to the banking system, wiping off liquidity.
In Zimbabwe, a multi-currency system with a relaxed exchange control regulations and concept of externalisation could be seen as a narrow crime whose definition may not be that easy to apply in reality.
For this reason, it may explain why it has taken a shortage of cash first to start acting on externalisation. It can be argued as well that the lack of action against the externalisation culprits suggests that the claims of externalisation may not be substantiated competently in a court of law. No wonder that, up until Gono (former RBZ governor) left office, he always threatened to name and shame those externalising money.
The revelation that over US$3 billion was externalised from Zimbabwe from 2015 to June 2017 is quite disturbing. If Zimbabwe’s GDP was slightly above $16 billion for both 2015 and 2016, a total of about $3 billion appears to be too huge a figure.
In that period, for argument’s sake, this amounts to almost 10% of the GDP. More recently, the government approved a three month amnesty for the return of illegally externalised funds and assets to externalisers, among them prominent business people and politicians.
While in economics there are hardly clear cut answers to problems, it is the use of permutations that work after identifying the problems. What is possible in our case is that the cash crisis could have been caused by a leakage from the governance system.
As reported by the central bank, in the period between 2009 and 2015, the current account deficit was widest in 2013, being US$3,431 billion. Yet there was no system wide cash crisis at the time, regardless of this magnitude. The same applies in 2011 when the current account deficit was about US$3,386 billion.
This means that something must have happened in the political terrain of 2016 to cause such a cash crisis. Suffice it to say, after hitting the peak of US$4,535 billion in 2013, notably being the last season of the inclusive government, banked export receipts declined from 2014 by US$857 million and by a further US$784 million in 2015.
It is, therefore, indisputable that the expiry of the politics of the inclusive government shifted the economic paradigm.
Maybe those who are meant to guide government in decision-making, located at the apex bank, have mutated into politicians. As a result, they think in terms of political correctness for fear or favour, at the expense of technocracy, the basis upon which they were hired. Politicians should be confined to government, while technocrats are confined to the central bank in practice. Excessive political interference in monetary policies may have taken us into this crisis.
For now Zimbabweans have no confidence in the country’s financial sector, strapped to the current political terrain. It takes trust and confidence building for people to support any policy measures that may be taken by the monetary authorities. Otherwise the cash crisis conundrum may be there for a while.
It is, therefore, incumbent upon government to implement water tight, integrated security systems on minerals such as gold and diamonds and track all major mineral extractions.
Claims that some senior government officials are externalising funds to foreign banks or have done so already in the past are mind boggling. They are partly or extremely to blame for the current crisis. Why do they deposit their treasures outside the country and yet claim to be patriotic? A case of stealing from their kith and kin.
Daniel Chigudu is a Zimbabwean who is an Associate Professor in Good Governance and a Research Associate at the University of South Africa in the College of Economic Management Sciences. He is also the Executive Director of the Fiscal and Monetary Research Trust.
Disclaimer: The ideas in this article are personal and not linked in any way to the University of South Africa or the Fiscal and Monetary Research Trust Copyright
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