Zimbabwe heading for shortages


Empty shelves in a supermarket in Harare, on 09 October 2008

THE worsening liquidity crunch is plunging the country into an economic gridlock which could set off an unprecedented post-dollarisation socio-economic crisis.
For the umpteenth time, Treasury has postponed payment of civil servants’ pensions, a testament of a deepening cash crisis.
In a statement, head of the exchequer Patrick Chinamasa said the payment date had been moved from May 9 to today to allow for “the mobilisation of the requisite resources”.
This suggests that government is increasingly feeling the heat.
The development came days after top executives at the Zimbabwe Revenue Authority had been suspended for alleged indiscretions that could have conspired with a shrinking economy to deprive the fiscus of the desperately-needed revenue.
As symptomatic of the crisis, banks are running out of cash, resulting in depositors struggling to withdraw their money.
While the Reserve Bank of Zimbabwe (RBZ) has come up with a cocktail of measures to mitigate the crisis, the situation seems to be worsening instead of improving because of widespread skepticism over the policy measures.
The Confederation of Zimbabwe Industries (CZI) – the largest industrial representative body – this week said the situation has become challenging for business because payments were taking longer to be effected.
Nostro account balances are running low, which means that companies are now queuing to have their external payments for goods and services processed.
This is also affecting the importation of equipment to retool industries.
A nostro account is a bank account held in a foreign country by a domestic bank, denominated in the currency of that country.
Nostro accounts are used to facilitate settlement of foreign exchange and trade transactions.
While the central bank, in consultation with captains of industry and bankers — through the Bankers Association of Zimbabwe — has put together a list to guide banks on how payments should be prioritised, there is now a gridlock of payments.
Industry and commerce is equally feeling the heat.
One importer of mining equipment claims they have been failing to import critical machinery because of banks’ failure to fund imports from nostro accounts
As a result, their warehouses are emptying, and this could negatively affect their customers.
“Nostro accounts are very low and this is making it difficult to import raw materials and machinery,” said CZI president, Busisa Moyo.
“We need to grow our exports, attract foreign direct investment. Very little money is coming in and a lot is leaving.”
Economist, John Robertson, said commodities could start disappearing from supermarket shelves unless government quickly moves to rebuild confidence in the market.
“The damage has already been done and it won’t be long before fuel companies start finding it difficult to pay for their imports,” he said.
Robertson said the cash crisis reached tipping point when Indigenisation Minister, Patrick Zhuwao, threatened to shut down foreign-owned companies that failed to comply with the controversial law around March.
“By that time, people were already taking their money out of the country. The common feature has been the serious damage on confidence our policies have had,” said Robertson.
He doubted if the introduction of bond notes, backed by a US$200 million African Export Import Bank facility, would achieve anything since it has triggered unintended panic in the market.

Finance Minister Patrick Chinamasa

Finance Minister Patrick Chinamasa

The bond notes are meant to stimulate exports by giving exporters a five percent incentive, while at the same time propping nostro account balances, which have been depleting owing to declining Diaspora remittances, poor exports and lack of foreign direct investment.
The RBZ initiative has, however, triggered panic amid speculation that the defunct Zimbabwe dollar could return on the market.
Individuals and corporates are therefore scrambling to mop up their cash from banks.
Corporates have significantly scaled down deposits.
Much of Zimbabwe’s crisis is stemming from a widening trade deficit.
The chasm between the country’s exports and imports has widened from an average US$400 million 10 years ago to an average of US$2,5 billion between 2011 and 2015.
Importing more than the country exports means   more money leaving the country than money coming in.
Zimbabwe has found itself in this situation because its industries are collapsing owing to unfavourable economic conditions that are scaring away potential investors and donors.
With the dollarisation of the country’s economy in 2009, there has been a skewed usage of the multi-currency regime, with the United States dollar dominating transactions, according to central bank governor, John Mangudya.
In fact, instead of being a medium of exchange, the greenback is now being considered a store of value because it has been appreciating against other currencies, he said.
That alone has also compounded Zimbabwe’s woes as the firming US dollar has made the country’s exports uncompetitive.
This has been worsened by the illicit  outflows of cash with the RBZ revealing recently that the country lost US$50 million in the first three months of this year.
Buy Zimbabwe, which promotes consumption of locally-produced products on the domestic market, said the country’s economy would continue on a downward trajectory as long as cash circulation  remains dire.
“Money is like blood. It needs to keep moving around to keep the economy going. When money is spent elsewhere, at big supermarkets in Dubai and Europe, non-locally owned utilities and other services such as on-line retailers, it flows out, like a wound. By shopping at the corner store instead of abroad or on imports, consumers keep their communities from perishing,” Buy Zimbabwe said in a statement.
The International Monetary Fund, whose board met last week to discuss the country’s economic reform initiatives, acknowledged that Zimbabwe’s economic difficulties were worsening.
The Bretton Woods institution highlighted: “Drought, erratic rains, and increasing temperatures, have reduced agricultural output and disrupted hydropower production and water supplies. Economic activity is severely constrained by tight liquidity conditions resulting from limited external inflows and lower commodity prices. Inflation remains in negative territory, because of the appreciating US dollar—the country’s main currency—and lower commodity prices. Zimbabwe remains in debt distress and the level of international reserves is low.”

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