Scraping the Bottom of the Barrel

For nearly 3 years the Government of Zimbabwe has been living beyond its means, not by a small margin, but massively. Deficit financing is nothing new but if it is not underpinned by growth, stability and confidence, it is simply not sustainable. Up to 2008 the State simply printed money to cover the shortfalls between revenue and expenditure. The consequence was a near total collapse and the instillation of a Government of National Unity.

Source: Scraping the Bottom of the Barrel – The Zimbabwean May 23, 2016

It seems as if they simply do not recognise the dangers of this sort of economic delinquency. By my calculation the deficit in government spending since 2012 has reached mammoth proportions – revenues have declined and they have tried to maintain expenditure at GNU levels. In 2015 the deficit must have been at least $1,2 billion with revenues about $3,6 billion and expenditure $4,8 billion. It may have been a bit lower if they curbed some spending, but it could not have been less than $1 billion – that is 22 per cent of all State expenditure.

In 2016 the gap has widened still further with revenues 16 per cent below budget and 9 per cent below last year. Total revenues are now 12 per cent below the total cost of salaries and pensions.

To fund this gap, the State has been printing Treasury Bills and dishing these out to all and sundry in place of payments and debt and as a means of drawing in cash from the open market and State controlled enterprise with a cash surplus. This avenue is now exhausted – they simply cannot issue more TB’s and all available sources of cash are closed to the regime.

So now they have crippled the entire banking system by withdrawing cash from the transit funds flowing through the Reserve Bank. This has created a serious shortage of cash in the market which is being exacerbated by a collapse of confidence in the banks and massive cash withdrawals. Now a market for cash has emerged with a premium of up to 15 per cent. Business is no longer banking their cash as they seek to benefit from the shortage of cash and the available hard currency is being diverted into the informal economy.

The consequence is a downwards spiral that, like a tornado, will destroy all in its path. This situation is moving very fast and is now totally out of control. The latest evidence of the desperation of the authorities and the times; is the attempt by the Reserve Bank to commandeer half of all export proceeds. This smacks of the pre 2008 collapse era when the Reserve Bank withheld 35 per cent of all export proceeds for its own use and replaced it with local currency at an artificial exchange rate set by the Bank internally.

Their attempt to disguise this operation by saying that the funds would be replaced within 48 hours by means of a wire transfer of funds from the Bank but accompanied by an advisory restraint on the banks not to use these so called “funds” expressed in US Dollars for external payments. In other words these replacement funds are just that – a paper figure without convertibility. Just another form, like the TB’s of a local currency.

They then used the funds withheld to buy real US dollars in the United States for local distribution – but no sooner than these new notes hit the market than they will vanish into the undergrowth that hides the shady world of cash trading and informal sector activity.

This new desperate measure will shortly be followed by the attempt to introduce Bond Notes as an extension of Bond Coins. The problem with “bad” money is that it drives out the “good” money. People will hoard the latter and try to get rid of the former – at any cost. When these new notes hit the street a market will emerge and this will set their value. The moment they cannot be exchanged for “real” money, they will be worthless.

What I find so difficult to understand is how and why the Minister of Finance  and the Governor of the Reserve Bank could have allowed themselves to get into this mess. These are both intelligent men with considerable experience in Government and this silly argument that they use for the Bond Notes that these will somehow be used to stimulate exports. Just who do they think they are fooling? Do they think the IMF will buy that explanation? Do they really imagine that the millions of street wise people in the informal sector will be duped? If they do, then I confess I am gravely wrong about them – they are the most stupid of our idiotic Government.

But there is a more immediate crisis emerging from this shambles. In 2012 the Government of National Unity was persuaded by the Minister of Finance (Biti) that the country to should try to reengage with the IMF and the World Bank in an effort to deal with the national debt and to try and get access to global banking systems and low interest rates on new debt.

They agreed and the result was detailed and painstaking negotiations with the IMF leading to the signing of a “Staff Monitored Agreement” with the Fund. When Zanu PF took over in mid 2013, they decided to continue with the programme and as a result Zimbabwe has been working with the Fund for the past 4 years. This has led to the completion of two formal SMP’s and in September last year, the Zimbabwe Government was able to sign an agreement with the Fund in Lima, Peru, which opened the door to negotiations over the country’s debt and the possibility of new funding.

This culminated in a meeting of the main Board of the IMF meeting in Washington this year, where the Directors (representing the shareholders) agreed to pursue the next stage. Two days later, without consultation or notice, the State announced its decision on the Bond Notes. There are many bad decisions a debtor can make in life, two of these are; you never lie to your banker; and you always give him notice of any major changes in your affairs. Zimbabwe broke all the rules and now we might have to face the collapse of the Lima Agreement and watch our relationship with the Fund and through the Fund with all the agencies of the multilateral financial system, go back into the freezer.

That will exacerbate all our other problems and be a major setback to the effort to reengage and normalize our relationship with the global political and economic community. It will make it more difficult to raise funds for major projects and this will make any economic recovery that much more difficult.

I simply repeat the mantra that I have been saying for some time now. This crisis can only be addressed and resolved by a change of Government and new faces and policies. Nothing else will turn us around and point us in the right direction.


  • comment-avatar
    Joe Cool 6 years ago

    Anyone who lends any money to this government is both irresponsible and dishonest

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      And anyone who expects this government to pay debts is insane. The revenue will go to top of the range vehicles for the blotted senior civil servants. How does one explain a top of the range E class, a latest Landover discovery and a top of the range latest Ford Ranger for one person? Such do not need lent money. Why give out money for people to do private business. Farming is a business stupid!

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    Joe Cool 6 years ago

    It surprises me that the US Treasury does not intervene in this fiasco, whereby someone – Mangudya – is intending to effectively dilute the value of the US dollar by printing worthless pieces of paper and declaring them to be on a par with the US dollar. I would say that this is interfering with someone else’s currency, and that Mangudya has no claim whatever to purport to set the market value of another country’s currency. I hope Mr Harry Thomas is reading this.

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    Jono Austin 6 years ago

    Some random thoughts. A number of scenarios may play out here. -another GNU (‘we are all brothers/zimbabweans-let us work together’) until the situation has stabilised or until the next election when Zanu will cheat and murder to stay in power. Probably won’t wash because MDC won’t buy into this having been burned before. They must keep hammering home the message-where is the $15billion? There may be massive civil unrest (a long time coming) when people can’t feed themselves and civil servants aren’t paid. There could be a scorched earth policy embarked on by zanu with a real hammering of the populace if civil unrest starts. However what zanu have failed to grasp is the impact of social media. There are now eyes everywhere and the populace must use social media (cameras on cell phones etc) to publicise the brutality of zanu. Zanu will struggle to deny their brutality when the evidence is there for all to see.
    The printing of bonds will not gain traction. The populace have tasted the power of the usd and they aren’t going to be fooled by an attempt to introduce the zwd by the back door. Having destroyed the savings of the country in 2008 there is not much left to steal. They do not control the printing presses! There aren’t many diamonds left either. There is huge maize deficit. Zanu are really up against it. I think the only realistic option left to them is an extreme police state (think North Korea) Will the average soldier/cop buy into this and will the population accept it? Social media everyone! Expose Zanu’s lies and get talking.

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    ntaba 6 years ago

    Information from the Chattering Classes of Matabeleland states that Patrick Anthony Chinamasa went to the Paramount Chief and told The Chief that he did not have enough money to pay the Govt. monthly bills. The Chief became angry indignant and told Patrick that it was his job to solve the problem – or Patrick would be replaced. Patrick thought about losing his job. Then Patrick remembered the brilliance of the Casino Clown Economist (Retired) – printing Zanu Bond Toilet Paper to extract US$ from the people was a far better alternative to losing his job. The Chief has instilled into his Mujibas that once they lose their anointed status from The Chief – they are nothing! The author of this article needs to remember that effectively, The Chief put a gun to Anthony’s head when he was told that his job was over if he did not raise the necessary cash. If the author had a gun put to his head and was told that the trigger will be pulled if the author of this article did not push the start button on the Printing Press – would he push the button or be shot in the head? Just as Shiri was told to go to Matableland and carry out the Gukuruhundi? The Chief, having just been to Fort Hare for an Old Boys’ Indaba, is now on very, very, very important business visiting his wife, daughter and grandchild in Singapore and must not be bothered with such trivia (as paying the Civil Service and the Military) that Anthony has brought to his attention – so we are told by The Chattering Classes.

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    Nyoni 6 years ago

    An interesting observation of the so called leaders we had to have is this.
    Besides their “war credentials’ what did most do before going off to war. For some we know but for many others and we know them ,there is no information on their jobs prior Chimurenga. If they worked in Rhodesia , what really did they do. Mmm very questionable.
    Do they police records etc. Judging by the actions of most of these maniacs ,it appears they must have had crooked tendencies well before the Chimurenga.
    If anyone out there has details on most please let us know. It would make interesting reading and prove what we have . A bunch of MAFIA running our country. Not that we do not know that already.

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    Mazano Rewayi 6 years ago

    Let’s just admit it, financial literacy and rule of law are steps too far for these people. You do not ask fish to climb trees, nor monkeys to swim. They simply can’t, how long they take trying will not change anything. Only an overhaul will save the country. The sooner we all realize this and fight for change the better.

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    R Judd 6 years ago

    The reserve bank is simply serving the function it has always served in this country, that is to fleece the population of their money in favour of a very few people at the top of the tree. Even now, when most businesses are having trouble paying their foreign suppliers due to reserve bank antics there are those who do not seem to be similarly effected

    As to the bond money fiasco, it will be interesting to see how rapidly the “bond” sinks. Please save your “bonds” to pay ZIMRA

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    Jake PhD 6 years ago

    @ R Judd……well noted – am sure ZIMRA is looking forward with glee, to receive loads of the confidence building “Bond notes”. A vision of things to come……. the current situation in the glorious ‘Socialist Republic of Venezuela’?

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    johnny b 6 years ago

    The bottom fell out of this barrel long ago, it’s just a bottomless black hole !!

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    use the “Bond notes” to pay utility bills and ZIMRA. Soon they wont be able to pay the police or the army, then it will explode.

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    I am pleased to see that at least some people are now concurring the very point I made some days ago, through these striblings.
    But you need to read other articles as well: It would seem there has been a wholesale creation of government bonds, that accounts have been raided to find money, the government is spending on non essential things, the coffers are porous, yet there is hope still shining in some persons eyes that the rest of the world will LEND enough money to pay off the debts. All this will not help because you are pedaling something you do not have. If you borrow some more, you still owe it all. You appear to be well and truly Banko.
    The creation of the bond currency, which is claimed to be backed by a loan, will not help. It will make thing worse because the country simply does not have the money, you might have borrowed some – but what do you do when it is called in?
    in the circumstances I feel that there little way out of the problem, except to sit down and stop spending , work out a proper budget etc.. There are two lines on the graph, in & Out; you are in the no recovery zone.
    This will HURT all citizens from High to Low.
    A commentator though this column says “like a North Koren State” does he not know that state is also Banko? Venezuela is as well.

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    Johann 6 years ago

    Make this simpler just don’t accept the bond notes at all.

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    Bloody fools the lot of the Zanoids