Govt panics as wheels come off

Source: Govt panics as wheels come off – DailyNews Live

Gift Phiri      15 April 2017

HARARE – With Zimbabwe’s economy continuing to die – as manifested by
rising poverty levels, worsening job losses and severe cash shortages –
the government is showing signs of panic, amid fresh warnings by experts
that the country is headed for an economic disaster akin to the meltdown
of 2008.

This comes as the Reserve Bank of Zimbabwe (RBZ) has set the maximum limit
for cash back facilities by retailers and wholesalers at $20, as
authorities desperately try to mitigate the country’s worsening cash
crisis which is forcing long-suffering Zimbabweans to spend hours at banks
queuing for their money.

“Any cash-back facility made available by retailers and wholesalers shall
not exceed an amount of $20.

“The Reserve Bank shall collaborate with wholesalers, retailers and their
associations to ensure the adequate provision of Point of Sale (POS)
machines in order to enhance the use of plastic money for transactions,”
the under-pressure central bank said on Thursday.

But a government source who spoke to the Daily News yesterday said the
country’s bigwigs were “panicking” over the ever-deteriorating state of
the economy.

“I won’t lie to you, we are all panicking. While it’s clear that the
Reserve Bank is doing its best, unfortunately our problems are deeper than
the central bank’s mandate, which is why they appear to be treating the
symptoms and not the causes of the problems,” the senior official said.

An executive with a retail chain, who spoke on condition of anonymity,
also criticised what he called “panicky, knee-jerk” policy pronouncements
by the government that he felt would not mitigate the dire situation
obtaining on the ground.

“We have now reached a situation where we do not know whether to laugh or
cry. I mean, what kind of policies are these where we are compelled to
bank our money but can’t get this cash back when we need it?

“Our biggest fear is that this is more and more looking like the nightmare
of 2008 . . . and while I’m not one of (People’s Democractic Party leader
Tendai) Biti’s admirers, I think he was correct when he described our
economy as a Ponzi scheme (a fraudulent investment operation),” he said.

On its part, opposition leader Morgan Tsvangirai’s Movement for Democratic
Change (MDC) said the RBZ should “simply own up and declare that the
prevailing cash crisis is beyond its control”.

“The wheels have totally come off,” MDC spokesperson Obert Gutu told the
Daily News yesterday.

“The bond notes experiment has been a spectacular flop. The chickens are
coming home to roost.

“What Zimbabwe needs and needs very urgently, is a lasting solution to its
long standing political and socio-economic crisis.

“These stop-gap measures like limiting cash backs to be paid by retailers
simply won’t do. We need to cure the cause of the disease, not just
rushing to suppress the symptoms,” he said.

PDP spokesperson Jacob Mafume alleged that senior government officials
were “the biggest hoarders of cash” in the country and not ordinary
Zimbabweans who were targeted by the new monetary measures.

He also said the RBZ was “criminalising what is ordinary economic activity
in other countries”.

Economist Kipson Gundani said the new cash back limits showed that
Zimbabwe had entered “an era of cash rationing” – adding that he did not
expect the measures to end the country’s severe cash shortages.

Mfundo Mlilo, a governance and public policy expert, also said the cash
back limits reflected the fact that the country’s cash crisis was
worsening.

“The money supply situation is worsening and this will negatively affect
aggregate national demand . . . It’s an ungodly act at Easter,” Mlilo
said.

Other economists warned that the cash crunch would pull down Zimbabwe’s
gross domestic product (GDP) growth and spawn a recession, with companies
and traders relying on cash set to be worst affected.

Economist Prosper Chitambara said the new regulations were a desperate
measure to curb the country’s worst financial crisis in eight years, but
would not succeed.

“Definitely, this won’t address the problem . . . this is a confidence
issue, as there are uncertainties in the market. People have no confidence
in using the formal system,” he said.

In the meantime, Zimbabwe’s worsening cash crisis has forced banks to
reduce further their daily withdrawal limits – in addition to suspending
dispensing money through Automated Teller Machines (ATMs).

This prompted analysts who spoke to the Daily News recently to say that
this confirmed that the local economy was dying and “hurtling towards
total collapse”.

It also comes as most banks are now disbursing a maximum of $30 dollars a
day, down from their usual $100 – while those that had capped the maximum
withdrawal limit at $500 a week have pulled this back to $200.

The cash shortages are also continuing to worsen despite the recent
opening of the tobacco marketing season.

Economic advisor to President Robert Mugabe, Ashok Chakravarti, told the
Daily News last week that the escalating cash crisis was a result of
“long-term problems” that came after the country opted to have one of the
world’s strongest currencies, the US dollar, as its anchor currency.

“We have close to $6,5 billion in deposits and at the end of January we
had a little over $300 million in cash circulating.

“Under such circumstances, it only makes sense that we have shortages. Do
not blame the banks, it is not their fault, they are only looking for a
coping mechanism,” Chakravarti said.

He recommended that the government should adopt the South African rand and
ditch the dollar.

“I have said this before, we need a weaker currency. The weaker, the
better for us. As South Africa has just been downgraded, this is an
opportune time. What we just need is a weaker currency,” he added.

Veteran economist John Robertson said the cash problems were going to
persist until the government urgently fixed the country’s economic
fundamentals.

“This has been going on for the past year and in my view, the situation is
not likely to improve in the near future because economic fundamentals
remain the same.

“Government’s wage bill still makes up the majority of deposits and as
soon as those deposits are recorded, civil servants want to withdraw the
money. But there is essentially no money in the system . . . Not even
tobacco earnings will save us this time” Robertson said.

The cash shortages come as there are growing fears that the country’s
economy may soon hit the disastrous lows of 2008 – as bond notes continue
to lose their value against the United States dollar, with the coveted
greenback now almost completely unavailable on the open market.

At the same time, economists have also told the Daily News that poverty
levels in the country are skyrocketing, with average incomes now at their
lowest levels in more than 60 years – and with more than 76 percent of the
country’s families now having to make do with pitiful incomes that are
well below the poverty datum line of more than $500.

Economists have also warned of a fresh round of sharp rises in the prices
of basic goods, including foodstuffs – as the US dollar continues to
vanish from the market, leading political analysts to worry about renewed
civil unrest in the country.

Biti, who is the country’s former Former Finance minister has also said
that Zimbabwe is heading for an economic calamity which would see the
government formally reintroducing the Zimbabwe dollar which has been
decommissioned.

“They are already printing what we call Zollars, an amphibious creature
which is half Zimdollar and half US dollar that is reflected in treasury
bills and bond notes which have no cover.

“This is reflected in unfinanced RTGS (real-time gross settlement) and
debit card transactions. We have created hot air, and as a result broad
money supply, M3, must be frightening. It must be close to 60 percent of
GDP. We are heading straight to hyperinflation.

“Zimbabweans must prepare for a long winter of despair. It’s in Zanu PF’s
DNA to print money and just spend it as if there is no tomorrow. The flood
gates are open and will drown us. It’s just a question of time now,” Biti
said.