Opinion

It’s time for the Mayday call!

That Zimbabwe is just unpredictable is now common knowledge.

For years we were told that a fiat currency which was introduced in 2016 to ease United States dollars was at par with the greenback.

Never mind the warnings that came from experts who cited the Gersham’s Law—a monetary principle stating that bad money chases good.

In a flash almost every literate Zimbabwean became an economic commentator.

During the same year, we were told that bond notes were an export incentive.

Nearly four years after the introduction of the surrogate currency, Zimbabwe’s exports remained low.

Long winding fuel queues, shortages of basic drugs in hospitals, power cuts and erratic supplies of chemicals to treat water bear testimony to the forex crunch that this economy faces. Authorities are however bullish.

Official figures show that inflows of portfolio investment, a class of investments that includes assets such as shares dropped significantly last year compared to prior year.

These dropped from US$54.7m in 2018 to US$3.7m in 2019. Presenting his first Monetary Policy Statement for the year, Reserve Bank of Zimbabwe governor, John Mangudya said the country’s current account had swung from a deficit of US$1.387bn in 2018 to a surplus of US$311.2m in 2019.

Ordinarily one would have said Mangudya deserves a pat on the back.

But that is not the case now because the outturn is a result of a decrease in imports—a reflection of foreign exchange in the market.

Zimbabwe’s sovereign risk also came under the spotlight when the central bank chief dropped another shocker that may result in hostile takeovers of local firms or massive closures.

Shockingly, the central bank also revealed that in 2019, there was a sharp decline of 21% in the value of foreign loans for private companies.

Companies could only access just over US$1bn, down from US$1.2bn in 2018.

Contract tobacco takes up the bulk of those offshore farm loans. This year we could see a different picture though.

Farmers and monetary authorities are yet to agree on the payment matrix of the cash crop.

It’s a rollercoaster ride.

The RBZ rejected about US$861m legacy debt claims for lack of supporting documents and double-dipping.

The viability of several companies has been under serious threat as a result of legacy debts, denominated in foreign currency following far-reaching currency reforms by the government in June last year.

The debt burden had spooked businesses and companies, which are finding it difficult to borrow from offshore creditors and financiers.

Most lenders across the world have now become risk-averse when dealing with Zimbabwe companies.

In our Companies & Market section for this week we ran a story highlighting how the legacy debt issue is affecting firms such as Surface Wilmar which produces edible oil.

Challenges faced by Surface are but a microcosm of the deep-rooted chronic ailment that this economy faces.

While authorities remain upbeat about registering growth this year, we contend that in the absence of credit lines and new capital to retool key economic sector, Zimbabwe may be heading for a downward spiral.

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