Bernard Mpofu
Government has crafted a new short term economic plan which will maintain the multi-currency regime despite submissions by industry to bring back a local unit to ease the country cash shortages.
Zimbabwe adopted a basket of multiple currencies in 2009 mainly dominated by the United States dollar to tame runaway inflation which had officially reached a record 231 million percent in 2008.
A trade imbalance resulting from low productivity from the real sector has seen the country relying on imports from the region and beyond. Despite registering double digit growth after dollarisation the economy slowed down in 2013 triggering foreign currency shortages among other challenges.
Senior government sources told Business Times that the Finance ministry has crafted a post-election economic plan to steer the country out of the woods. The new plan will succeed the Zimbabwe Agenda for Sustainable Socio-Economic Transformation (Zim Asset) which was widely criticised by critics for being over-ambitious. Zim Asset was adopted after the 2013 general elections and it ran for five years albeit with serious contradictions within government.
The plan, Transitional Stabilisation Programme 2018-2020 is expected to set the path to President Mnangagwa’s Vision 2030. According to sources, it addresses issues such as export growth, foreign direct investment, re-engagement with the international community, the country’s debt and currency issues.
Zimbabwe voted on July 30 in a historic election where 23 presidential hopefuls were vying for the highest office in the land. Incumbent president Emmerson Mnangagwa received 50,81 percent of the vote, closely followed by the MDC Alliance candidate Nelson Chamisa who garnered 44,35 percent. Chamisa and his alliance partners are challenging the election result saying tallies were fraught with inconsistencies.
The sources said government took the decision to extend the multi-currency regime given the country’s precarious import cover. Zimbabwe has an import cover of only two and a half weeks which means its foreign currency reserves can only buy imports for half a month.
A country is normally required to have at least three months import cover.
“The short term economic plan is now at its final stage. It should be presented before the post-election cabinet by the end of August once the president is inaugurated,” a source said.
In the run-up to last month’s polls, the Confederation of Zimbabwe Industries made its submissions to government lobbying for the re-introduction of the Zimbabwe dollar. The manufacturing sector cited backlogs in accessing foreign currency from the Reserve Bank of Zimbabwe and bottlenecks in repatriating profits offshore as the reasons for this.
Other bodies were pushing for Zimbabwe to join the Rand Monetary Union given that South Africa is the country’s major trading partner.
On the country’s debt programme, the plan according to sources would pursue the Lima plan as it seeks to re-engage with the international financial institutions.
In October 2016, government approved an external arrears clearance strategy to pay off $1,8 billion overdue to multilateral creditors in order to break its vicious debt cycle at secure fresh funding to jump start the economy.
Sources said while government remains committed to the Lima plan, many obstacles have to be overcome before creditors can accept money from Zimbabwe.
The settling of arrears, sources added has to be done in synchrony with the implementation of structural economic reforms that include enhancing investor trust and confidence, state-owned enterprises transformation, ease and cost of doing business and fiscal consolidation.
Last year, the International Monetary Fund said the Lima plan was on shaky ground. This came as it emerged that that there was discord in government over the implementation of the programme.
“The re-engagement process is facing severe headwinds,” the IMF said in a report on Zimbabwe.
“However, the expected bilateral loan to clear arrears to the World Bank Group did not materialise, and led authorities to seek an alternative package from commercial lenders.” The IMF added that inadequate progress on reforms undermined the prospects for new funding.
Already Zimbabwe has used its Special Drawing Rights holdings to clear the $210 IMF arrears and is understood to have secured funds offshore to settle the $1,2 billion World Bank arrears. Government will get a $600 million bridge facility from the African Development Bank to settle its arrears with the regional financial institution.
The restoration of relations with international financial institutions and repayment of bilateral loans is the only way for the cash-strapped government to access long term concessionary to quicken economic growth.
