Things fall apart in Zim

Source: Things fall apart in Zim – DailyNews Live

Gift Phiri      8 March 2017

HARARE – As Zimbabwe’s clueless government continues to blow billions of
“fictional” dollars that it does not have – on trinkets and its bloated
workforce – experts have issued a fresh warning that the country is
heading for an economic disaster of epic proportions, akin to the 2008
meltdown.

This comes as President Robert Mugabe’s administration announced on Monday
that it would pay its workers $180 million in unbudgeted financing for
2016 bonuses to stem a planned strike, as the panicking ruling Zanu PF
intensifies its disastrous populist policies ahead of next year’s
make-or-break national elections.

Economic experts who spoke to the Daily News yesterday said the government
was “playing with fire” by continuing to spend money it did not have –
through its rising, reckless and unsustainable domestic borrowings, which
had seen its local debt ballooning from a manageable $300 million in 2012
to a whopping $4 billion by October 2016, worsening the country’s
liquidity crisis in the process.

At the weekend, the Daily News’ sister paper, the Daily News on Sunday,
also reported that there was renewed fear among both businesspeople and
ordinary Zimbabweans that the country’s economy could soon slip back to
the disastrous lows of 2008 – as shortages of cash persist despite the
introduction of bond notes which are rapidly losing value against the
United States dollar.

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.

Former Finance minister Tendai Biti said yesterday that Zimbabwe was
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.

He said the government was printing treasury bills (TBs) – short-term
promissory notes issued by the government to raise funds – at a
frightening pace.

“If you add up all the TB figures, they amount close to $4bn, which is
almost the entire national budget. We are back in a new regime of economic
insanity. This is Chinamanomics,” he said, taking a dig at Finance
minister Patrick Chinamasa.

Meanwhile, researchers at Exotix Partners say they have seen a co-relation
between the time the government started injecting TBs into the market and
the disappearance of hard cash.

They also refute official assertions that the printing of money ended in
2008 when the country switched to a multi currency system, saying it was
happening through the TBs.

On its part, equities group IH Securities has cautioned about a turbulent
year ahead, on the back of the government’s failure to contain its
ballooning expenditure.

“Confidence in the financial sector is faltering . . . On the surface, the
financial sector has remained somewhat resilient … despite clear
headwinds in the form of growing exposure to TBs, uncertainty around bond
notes and a decline in quality borrowers under the economic circumstances.

“We are wary of the financial sector as balance sheets become heavily
exposed to TBs and as cash balances begin to lean towards bond notes
relative to hard forex,” IH said in its 2017 equity strategy paper.

However, Reserve Bank of Zimbabwe (RBZ) governor John Mangudya is adamant
that the value of bond notes is not tumbling – asserting to the Daily News
on Sunday at the weekend that the surrogate currency was still trading at
par with the dollar.

He also dismissed strongly recent State media reports that the
under-pressure central bank would soon introduce $10 and $20 bond notes to
ease the country’s severe cash shortages – claims which fuelled suspicion
that Mangudya was about to flood the market with the surrogate currency.

But long-suffering Zimbabweans who spoke to the Daily News on Sunday said
bond notes were “definitely devaluing”, adding that many shops around the
country were also beginning to reject them.

Economic expert Prosper Chitambara said bond notes were losing their value
while US dollars were disappearing from the market because importers
needed greenbacks to replenish their stock – and given the scarcity of the
dollar and the demand for it, a premium was now placed on the American
currency, with an inevitable parallel market emerging.

“What is causing all this is that the bond note is not internationally
tradeable. If you are a business that relies on imports, you can’t use
bond notes to import, which has affected their value.

“Value in this case is determined by market forces of supply and demand,”
said.

Another economist, Witness Chinyama, said the economy was now dominated by
bond notes, which the market perceived as “bad money”.

“The good money (dollars) has been driven out of circulation by the bad
money, as bond notes can’t be used to import goods.

“While at official level the currencies are still at 1 to 1, for the
importer, the bond note is weaker. The dollar is now the reserve
currency,” Chinyama said.

But Mangudya vehemently denied that the value of bond notes had tumbled.

“Have you seen twin-pricing in OK (supermarket) or other major outlets? We
can’t talk of backdoor shops . . . Go to the formal market, there is no
weakening of value there . . . we can’t talk of out-layers,” he said.

Biti accused the government of effectively running “a Ponzi scheme” – a
form of fraud.

“You have four sources of the Ponzi scheme. First is dollar bank balances
sitting in the bank, with depositors unable to get their money. Depositors
have been transacting through RTGS and debit cards.

“Wherever you use debit cards, it’s just transactional. We are circulating
hot money, and it’s huge. We need an audit of how much money has been
created through the circulation of hot money.

“The second challenge is money being deposited into exporters’ accounts.
The RBZ is crediting accounts with RTGS balances. The real money is not
coming out. That money is being recycled and rechannelled.

“Government has been borrowing, issuing treasury bills and using them as a
source of currency. Take the RBZ debt of $1,5bn – all of it was paid by
treasury bills.

“We now have billions worth of treasury bills, some of which will be
redeemed as late as 2028.  Meanwhile, importers have queues ranging
between one month and six months. And applications for import permits are
not being processed.

“We need a change in government to restore trust. We need to start
producing . . . factories, mines have to start working. We need a whole
raft of reforms which Zanu PF is not capable of,” Biti said.

Many economists and businesses have been pushing for the adoption of the
South African rand to avoid the country plunging into an economic crisis.

Mugabe has also backed Zimbabwe’s greater use of the South African
currency when he spoke in an interview with the ZBC to mark his 93rd
birthday a fortnight ago.

The nonagenarian has also since said that bond notes are a temporary
measure to mitigate cash shortages in the country.