Easy up, sticky down: Zimbabwe lunges towards economic despair

In May this year, Zimbabwe placed itself under the watchful eye of the International Monetary Fund (IMF). The IMF’s so-called Staff-Monitored Programme (SMP) outlined a series of reforms intended to guide the country back to economic stability.

The reforms included fiscal adjustments, privatising state-owned assets and the elimination of central bank funding of the fiscal deficit.

In July, it seemed Zimbabwe was on target to meet the IMF targets. But then catastrophe struck – and it was entirely self-created.

The Zimbabwe Reserve Bank flooded the economy with billions of dollars in support of the agricultural sector. In the space of a year, money supply exploded by 86%.

The result was inevitable and entirely predictable: inflation is now running at close to an annualised 1 000%, while incomes have gone up just 100% over the last year.

“It’s disheartening,” says Eddie Cross, former Movement for Democratic Change (MDC) parliamentarian and one of the architects of the return to the Zim dollar (officially known as the RTGS or real-time gross settlement dollar).

“A year ago, a typical bus fare in Harare was 50 cents. Now it is Z$10. It’s got so expensive that many people cannot afford to travel to work.”

Milk has gone from Z$7.50 to $25 a litre in the space of a few months. The Zim dollar lurched from Z$8:US$1 a few months ago to nearly 30:1, but has since clawed its way back to 15:1 as the reserve bank embarked on a mop up operation to reclaim the billions of dollars flooded into the economy in recent months.

Zimbabweans have a saying about inflation – easy up, sticky down.

It means inflation responds rapidly to an increase in money supply, but is slow to drop when money supply growth drops. That’s exactly what is happening now.

Finance minister Mthuli Ncube is now tasked with recovering the billions of Zimbabwe dollars – effectively free money – injected into the economy. The bank accounts of several major beneficiaries have been frozen and some of the money has been reclaimed.

Despair

Zimbabweans have lived through this nightmare before, but this time the despair is more acute because there was genuine hope that conditions would improve with former president Robert Mugabe out of the picture. The country is without power for up to 18 hours a day as it struggles to pay its Eskom bill and hours-long queues at petrol stations are routine.

The IMF has given Zimbabwe a 15% chance of meeting its SMP targets before the end of 2019. If the targets are missed, it will take another two to three years before the country can re-engage with the IMF – which is a precondition for international re-engagement.

MDC parliamentarian James Chidhakwa says conditions in the country have become intolerable, with ordinary people surviving on US$0.20 a day. “There’s no water, no cash, fuel prices are going up weekly, and groceries are becoming unaffordable.”

In November last year Zimbabwe’s external debt stood at US$8 billion and domestic debt at US$9.6 billion. But a recent Parliamentary Portfolio Committee report on public accounts shows domestic debt now sitting at US$880 million.

This massive reduction in domestic debt represents a staggering US$7 billion “grand heist by government on domestic creditors,” according to the Zimbabwe Independent.

The National Assembly is now demanding accountability for at least 17 breaches of the law on public spending.

One of the changes introduced by President Emmerson Mnangagwa is the appointment of a new board at the reserve bank and the launch of a monetary policy committee – similar to that at the SA Reserve Bank – to take control of the country’s hitherto chaotic monetary policy. It has been given clear instructions by the president to bring stability to the country’s economy.

An SMP is an informal agreement between Zimbabwe and IMF staff, and does not entail financial assistance or endorsement by the IMF executive board. Cross says there is little hope of meeting the IMF targets in the given timeframe.

If that’s the case, it will be a slow and painful climb back to any form of stability.

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