PHILLIMON MHLANGA
Zimbabwe’s economy has accelerated its slow down as government faces a litany of challenges to restore economic stability and growth as it appears to be failing to recover from the meltdown the country has been facing over the past 10 months.
A new wave of price increases of basic commodities hit consumers this week as manufacturers continue to track foreign currency developments to match costs. There are also fears that this trend could continue unabated as petroleum industry players are also expected to increase fuel prices in the coming days. Apart from the inflationary pressures the economy is also battling rolling power outages after power generation at the country’s largest hydro-powered station declined due to reduced water levels at Kariba dam.
Already the International Monetary Fund sees Zimbabwe’s economy registering a negative 2.1 percent growth this year before bouncing back next year due to effects of the drought and the catastrophe of Cyclone Idai which ravaged eastern parts of the country in February.
Several economists and analysts who spoke to Business Times this week highlighted that there were no significant changes in the business environment and Zimbabwe is still regarded as a very high-risk investment destination. The high sovereign risk which has also been worsened by the country failure to pay arrears to international financial institutions over the last two decades has also made borrowings offshore costly.
They said although the 2019 National Budget was generating a cash surplus, government was failing to strengthen the business climate and stabilise the local currency against reserve currencies, a situation which has resulted in business continuing facing hurdles. Key challenges confronting include ensuring that companies increase capacity utilisation, tackling corruption, paying external and local debts, obtaining lines of credit and overcoming
foreign currency shortages.
Social challenges include inconsistent power and water supplies, poor infrastructure and deteriorating education and health system.
Obtaining loans to retool businesses would be a major challenge. There is an almost freeze in credit markets as banks are unwilling to lend much due to a high risk of default. The cancer appears to be a complete loss of confidence in the financial system.
Recently published financial results for banks showed huge chunks of write-offs on the part of borrowers who failed to service their loans.
Some believe that the local currency is overvalued against the Rand or the Pula and the greenback being on the nominal exchange rate, as one of the problems the country is facing. Others said this was flawed and suggests the value of the currency is underpinned by stability, productivity and confidence. Zimbabwe, currently, doesn’t have any of
these unfortunately.
Newly-elected president of the Confederation of Zimbabwe, Henry Ruzvidzo said it will be difficult to turn the economy around unless government stabilise the local currency. This, he said was causing lot of upsets.
“The way or the rate at which the foreign currency exchange rate is changing every day does not make sense because this is not supported by fundamentals,” Ruzvidzo told Business Times.
“As business, we want stability of the exchange rate. What is happening is causing a lot of upsets. It makes planning very difficult for business because the rate changes almost every day, and it also makes tendering difficulties.”
He said industry wants a more stable situation while government is saying it’s ‘doing well to address the fiscal deficits; it has not done enough to manage confidence in the country’s currency and how to access foreign currency through the banks”.
“There is still much work to be done by government on this front. I think we are reaching a plateau where we cannot continue to increase the rate of the currency against the other currencies because there will be no enough RTG$ to support it. The biggest problem is that we don’t have stability and it’s a disaster for the economy,” he said.
Economist Brains Muchemwa agreed with Ruzvidzo instability of the currency was causing most of the ills the country was facing. He said it was a misconception by some and misleading that the value of a currency is its nominal exchange rate relative to reserve currencies.
He added that the strength of a currency is measured by its stability or movement relative to reserve currency over a period of time.
“To think that the bond note or RTGS is overvalued to the rand on account of the nominal exchange rates is flawed and can equally mislead one to think that the Japanese yen at 109 to the US dollar is among the weakest currencies in the world,” Muchemwa said.
“The value of a currency is underpinned by productivity and confidence. Unfortunately we don’t have these at the moment. Minister (Mthuli) Ncube at the time he was appointed was at the forefront of rallying opinion against the very currency he was appointed to defend
and support.
“And the market has ever since lost confidence in the local currency. And therefore the new levels of exchange rate equilibrium, although reflecting years of excessive domestic broad monetary expansion on the back of staggering foreign exchange inflows reflects the lack of
market confidence in this domestic currency which can be easily traced to earlier comments by Minister Ncube. So, it might be difficult for government to turn it around in the short-term.”
Finance and Economic Development Minister, Mthuli Ncube, admitted that the unfavourable shocks were derailing efforts to turn the economy
around.
“Generally, the first quarter of 2019 economic performance reflects the impact of significant headwinds experienced, exacerbated by the cyclone that hit the country in March,” Ncube said adding that “inflationary pressures lingered on”.
Zimbabwe, Ncube said, is experiencing indiscipline in the foreign currency market, something which is he said was a major source for black market exchange market premiums. This feeds into inflation, which in the month of April went up to 75,86 percent from 66,80 percent in the month of March. In September last year, annual inflation was around 5 percent.
Government’s employment costs, during the first quarter of this year, increased by 3,1 percent of total expenditure to 6,3 percent to give ZWL$93,3 million, according to official data obtained from the Ministry of Finance and Economic Development.
The financial difficulties also forced the government to issue new Treasury Bills worth ZWL$180 million, largely for the purpose of restructuring last year’s maturing debt.
Due to the instability of the market, government has also been forced to defer the implementation of the TBs Auction system. The administration wants to launch the auction system in the fourth quarter of this year.
“With respect to the implementation of the TBs Auction System, it is envisaged that this will now commence by the fourth quarter, due to the recent measures announced in Monetary Policy Statement. This will allow markets to settle,” Ncube said.
