Zimbabwe cash crisis growing ever deeper

New local currency, bond notes, are no solution: IMF

ZIMBABWE’S cash crisis is not getting any better and the International Monetary Fund says that its new local currency, bond notes, is not going to fix its chronic financial problems.

Zimbabwe ran out of cash – the US dollar – from April last year, so it withdrew high denomination notes from the market and introduced about R1.3 billion in cash using small denomination locally-produced bond notes.

Governor of the central bank John Mangudya said this new currency was backed by Afreximbank in Cairo. The new cash would be deposited as a 5% bonus to exporters.

On Sunday at the current Spring IMF meeting in Washington, African director Abebe Aemro Selassie said a whole package of reforms was needed to get Zimbabwe out of the crisis.

“There’s a limited amount of foreign exchange inflows coming in and no monetary policy tool. So they are in a difficult circumstance right now. We think that going down this one (bond) note route will not address the challenges the country has.

“It’s important to have a more comprehensive policy package, which also addresses a lot of the fiscal challenges the country faces, a lot of the structural reforms that have to be done,” he said.

Mangudya, insiders say, listens carefully to the IMF and has now said he will not, for the moment, release any more bond notes, even though he has only released about half the amount he said he would print.

Zimbabwe also dramatically restricted imports – mainly from South Africa – as it did not have enough money to pay for them.

To secure new loans, it finally repaid the IMF but has failed to settle its long-standing loans to the World Bank and the African Development Bank. Finance minister Patrick Chinamasa has not yet been able to get political clearance from the ruling Zanu-PF to fulfil his 2015 commitment to the IMF to cut the size of the civil service and other public spending, which consumes more then 90% of government revenue.

Since the bond notes arrived in the banking system late last year, US dollar notes have largely disappeared. The central bank accuses some of hoarding them and last week placed a cap on cashback facilities offered by some major retailers such as South African chain Pick n Pay, which owns several supermarkets in Zimbabwe.

Unable to get cash from ATMs or even their banks, many shoppers pay for their goods at the till using their bank cards and then add extra dollars to the slip, and the supermarket gives them notes back.

Now the central bank has told retailers to limit that facility to about R250 a time. Banks are only allowed to provide customers with a maximum of R2 600 a week from their accounts.

Many employers pay workers via telephone banking or their bank cards. So while bank statements show a US dollar amount, depositors cannot withdraw it except in small amounts from time to time.

Zimbabwe had good rain this summer and the government says it has produced enough to feed the country in the next year, so it will save foreign cash on food imports.

Tobacco is also selling now, so some foreign cash is coming into the country, but clearly the cash drought will not be solved soon.

Economists say there is no easy way ahead for Zimbabwe, which wants to borrow money from the IMF until, in particular, it pays off about $600m (R7.7 billion) to the African Development Bank.

Harare had to abandon its own currency, the Zimbabwe dollar, in 2008 because it lost value after years of hyperinflation.

At first the South African rand was popular, especially. But when the rand value dropped, most concentrated on the US dollar. – Foreign Service