A return to the dark days

President Emmerson Mnangagwa on Saturday announced a raft of measures to deal with the “economic hitmen” the government blame for orchestrating the routing of the Zimbabwe dollar against major currencies.

If the outcry post the announcement is anything to go by, it is clear the measures were instituted without adequate consultations.

Lending by banks has been suspended until further notice but the temporary ban does not apply to offshore drawdowns, the central bank said in a circular to give effect to the directive.

The directive was ill-advised as it rips into the banking sector, the nerve centre of the economy.

How will banks survive if they cannot get interest income which accounts for nearly half of its total income remains a mystery.

Companies that approach the banks for working capital or money to pay salaries have also been affected. The net effect is that companies will face working capital constraints and cannot increase their capacity utilisation.

This means that companies are left at the mercy of loan sharks known for charging usurious interest rates.

The suspension of lending comes at a time the economy has been showing signs of recovery after two years of intermittent lockdowns as part of measures to contain the spread of the Covid-19 pandemic.

Zimbabwe does not need economic hitmen to attack the local currency as long as the auction system remains detached from reality.

The platform has failed after authorities violated auction rules such as ensuring that the highest bidder wins. This has seen the auction trailing the interbank and the parallel market rates fuelling arbitrage.

Claims that the auction and interbank rate will converge at some point remains wishful thinking as the former is now an avenue for arbitrage as the Zimbabwe National Chamber of Commerce said this week. Who is benefitting from the auction if it cannot deliver the money allotted with a backlog running into 10 weeks? Twice the government has promised to clear the backlog coming up with a deadline. Twice it has failed to clear that backlog. President Mnangagwa said the backlog will be cleared this month.

The government has also put a charge on forex transactions on transfers and withdrawals. This weakens efforts to bring transactions into formal banking system.

In addition, the fact that the bulk of the transactions are done outside the formal system, the transmission mechanism of the new measures will not be felt.

The measures which come barely a year before the 2023 polls confirms what analysts have already predicted: populism always takes centre stage with approaching elections.

That Zimbabwe is in an economic hole is not in dispute. What is debatable is how to extricate the economy from that hole. The new measures are akin to continue digging when one wants to extricate self from the hole.

It’s back to the dark era where emotions supersede reason.