Liquidity crunch: A flashback to 2008 – Tendai Biti

via Liquidity crunch: A flashback to 2008 November 29, 2013 by Tendai Biti Zimbabwe Independent

WANANCHI, the Oxford Concise Dictionary defines the word hubris as excessive pride or self-confidence.

In the first 100 days of the new Zanu PF government after elections, the citizen has seen a lot of hubris, but which is hollow and unfounded. There has hardly been any second for a honeymoon or a little moment for celebration. Not that there was ever reason for it. One does not celebrate stolen spoils.

But it has been an incredible 100 days that has invited an intense debate of the ability of the “Revolutionary Party” to govern. So far it has failed the test.

It is far too easy to rig an election, but there are other things — the economy and the welfare of the people — that are beyond the shenanigans and dirty clutches of Nikuv. The “Revolutionary Party” will know this.

In the last three months, chickens have been coming home to roost, with excuses fast disappearing — there is no more MDC to blame or even to help them out.

The tired gerontocracy — a form of oligarchical rule in which a polity is run by leaders who are significantly older than most of the adult population — is thoroughly exposed in the full glare of publicity, and no amount of liposuction or botox can hide the reality of the present socio-economic situation in the post-election period.

We have a serious crisis, an extremely bad crisis of governance, crisis of legitimacy and a crisis of expectation rocking the economy and the country.

Even for a party that has had more than nine lives, for a party that has been heteromorphic, that is able to change and shift into anything and everything at the same time, the sense of foreboding is nigh. The feeling that indeed after the victory party there could be no ruling party is growing.

Never mind internal canibalisation, indeed the cost of closed-minded insularity, the critical issue is the economic tailspin dogging the country. All is not well in the state of Rome.

The past few months have seen a massive evaporation of business confidence, productive activity and collapse of economic recovery which had begun in 2009.

That 300 workers are being retrenched a week alone is a sign of the massive contraction of the economy and its attendant decline.

Retrenchments, company closures and capital flight have been a consistent feature of the post-election period. That trend has been confirmed in the form of serious reductions in revenue being collected by government, the exponential accumulation of domestic arrears and widening balance of payments position.

Many will wonder why when all other indices are deteriorating, inflation is in fact on the decrease. The simple truth of the matter is that often when there is no economic activity, when domestic demand collapses, inflation, in fact, recedes. It’s called stagflation.

Zimbabwe is in middle of this phase right now. It is a phase of inertia.

The state of the balance of payments makes Zimbabwe appear like some economic backwater or a little tinpot outpost of economic mismanagement. There has hardly been any meaningful capital inflows after the elections, and instead capital is jumping ship in full flight. So the capital account is in distress.

But it is the current account that is in a mess, reflecting the deep structural nature of the present crisis. This is no temporal aberration.

Up to August, imports have been around US$5,6 billion against exports of US$2,3 billion, resulting  in a trade deficit of roughly US$3 billion. Experts like John Robertson calculate that at least US$12 million per day is being funnelled offshore to finance imports. The state of the country’s current account is what physicians would call permanent haemorrhaging.

It cannot be patched up overnight. It is a structural problem reflecting a collapse of the productive sector. It is a supply-side issue demanding supply-side solution.

Tied to the desperate balance of payments problem is the current liquidity crunch. There is no money in the banking system and the economy.

Banks are over-lending to the extent of loan-to-deposit ratios well above 90% and non-performing loans scaling towards 15%. The liquidity crisis is so bad that there are echoes of 2008.

Banks are now limiting cash withdrawals, telegraphic transfers are now taking longer and cash at ATMs is scarce for big banks while totally unavailable for smaller ones. The critical liquidity situation is both a monetary and fiscal crisis.

As a monetary issue, it reflects the challenges of dwindling amounts of broad money supply (M3) in an economy where seigniorage or quantitative easing is impossible. That is why in some quarters they are now embarking on an ill-advised and suicidal call for the return to the Zimbabwe dollar.

But the bottom line is the liquidity challenge is less a monetary issue than it is a fiscal issue. There is no production; there are no meaningful exports, so naturally there is no liquidity and wealth being created.

We are hunting and catching a mouse, but feasting as if we have killed an elephant.  It simply does not work — you must eat what you kill!

These macro-economic challenges pale into insignificance when measured against the scale of other broad problems which need redress and urgently so. These are troubles of unemployment, the shortage of water and power, wage bill, agriculture revival, domestic debt, sovereign debt, de-industrialisation, collapsing social services, lack of foreign direct investment, lack of domestic savings and systemic banking sector vulnerabilities, just to name a few.

The Zimbabwe Agenda for Socio-Economic Transformation (ZimAsset), just another empty economic blueprint, will not address these problems.

What is needed beyond these vacuous blueprints is serious reflection required to resolve these structural issues and come up with lasting solutions.

Herein lies the problem: The real and biggest challenge facing the nation is leadership. There is dearth of leadership with the craft-competence and vision to tackle the present challenges.

What does this mean? It means the present tumbling of the economy is a vote of no confidence in the new post-election government by investors and the markets, and inevitably citizens. What is the solution? It is both a political and economic issue. Government needs to start focussing seriously on these issues before it’s too late.

Biti is MDC-T secretary-general, former finance minister and lawyer.


  • comment-avatar
    B.Mathe 8 years ago


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    uhhh where are we going with zanu pf.lets go for another election today.zanupf makonewa chose.

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    Cypriano 8 years ago

    If we are to go by zanupf promises,it is supposed to create 400000 jobs per year and so far nothing has hapenned.instead 300 jobs are lost every week!lest wake up zimbos

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    Rwendo 8 years ago

    The sad fact Biti is that although there are indeed a few echoes economically of the nightmare that was 2008, politically ZANU is now in a far stronger and more secure situation than in 2008. And 2018 looks gloomy indeed for democratic change. Even this ZANU in-fighting for me signifies the sad reality that the factions are no longer forced to unite against a common threat – the threat has been effectively neutralised. The next likely trend is another period of human flight, brain-drain, behind the leaking dollars. Not as fast, large or dramatic as the mass exodus seen post 2000/20002. But this time people will be taking US dollars with them, not Zim currency.

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    Boss MyAss 8 years ago

    In Zimbabwe, it has created a persuasive and repetitive myth that only one man can be President for life; that only Zanu PF members can have access to new opportunities and lead a better life than most; that only those who are politically connected through birth, association or sheer audacity must have an advantage and be entitled unbridled access to the wealth of Zimbabwe. That only our “freedom” fighters can be heroes.
    It will not be easy to change our circumstances or move our country into a modern democracy because we have been psychologically complicit in creating a social system that does not respect our own needs and aspirations. Our tyranny is manufactured by the people of Zimbabwe, for the people of Zimbabwe — that is the hardest fact to accept. You see, dictatorships can only arise and flourish where very specific conditions are met. Critical to an effective dictatorship are people with a low self-esteem and who have a victim mentality. People who believe it is outside them that change can emanate. In such instances, the political leadership must also meet these same conditions; they must have a destructive and incessant low self-esteem and must, therefore, put to good use all tools and forms of oppression to shield their egos and vulnerability. They must continually claim all that is good in society, and blame all that is bad on others. This works in arresting potential, stifling growth, spreading poverty and hopelessness so that citizens may remain complainants to a system that they abhor. Dictators mirror their low self-esteem on the society which they seek to oppress and in that society, must be those individuals who are willing to support that low self-esteem with theirs. A dictator must surround himself with praise singers and charlatans whose only interest is to see how they can benefit from the dictator. The dictator will then reward those who praise and fear him and incarcerate or injure those who refuse to do so.