Instability blights Common monetary Area prospects

FORMER Finance minister Tendai Biti says Zimbabwe’s economic crisis, characterised by currency volatility, 785% inflation, a gargantuan debt stock estimated at US$10 billion and dwindling exports, hinders the country from joining South Africa’s Common Monetary Areabre (CMA), considered one of the few avenues towards normalcy.

When Finance minister Mthuli Ncube was appointed in 2018 amid a populist wave and blaze of publicity, the Treasury boss hinted that joining the CMA was among a range of options available to extricate Zimbabwe from the intractable crisis, which worsened when the country abandoned the multicurrency regime. Two years after the reintroduction of the Zimbabwean dollar, the local unit has spectacularly crashed against the US dollar, presenting fresh hurdles if the country ever entertains the idea of joining the CMA. Currently, the exchange rate is US$1:ZW$80 despite a raft of measures spelt out by the central bank to arrest the dramatic collapse of the local unit.

Biti, who served as finance minister during the Government of National Unity from 2009 to 2013, a period characterised by relative economic stability, told the Zimbabwe Independent last week that Zimbabwe’s spiking inflation, projected to shoot to 1 000% by year end, unsustainable debt levels and limited foreign currency reserves would present Zimbabwe with fresh hurdles if the idea to join the regional monetary area is ever pursued.

“Zimbabwe cannot join the Rand Monetary Union (RMU) now. It would be foolish for South Africa, Namibia, Swaziland and Lesotho to admit Zimbabwe because we will be exporting our sickness into the region.

“At the moment, Zimbabwe is the sick man of southern Africa. Zimbabwe must attain certain targets before joining the RMU. We cannot join the RMU where the average inflation is 7% and when Zimbabwe’s inflation is 700%.You cannot import 700% into that region.”

To gain admission to the CMA, a member country must mobilise sufficient reserves equivalent to its issued local currency, backed by prescribed assets in rand or US dollar terms so as to conform to the fixed exchange rate of 1:1 with the rand. Member states are also bound to contain sovereign debt within an agreed debt-to-GDP ratio and have regular consultations with the South African Reserve Bank on monetary policy alignment.

Addressing Zimbabwe’s currency crisis, Biti said, would require demonetising the local currency, redollarisation and tackling the country’s huge debt stock, among a range of reforms seen as key towards refocussing the country’s fragile economy on a firm recovery and growth trajectory.

Zimbabwe’s total external debt is hovering around US$10 billion, with more than US$6,284 billion being arrears to the World Bank, African Development Bank, European Investment Bank and the Paris Club, among other financiers.

“The other important ratio to look at is the net value of debt to exports. This ratio is key because you use your exports to clear your debt. Our debt levels now are over 90% to export earnings. Our debt-to-GDP ratio is over 200%,” Biti said, highlighting that Zimbabwe’s ballooning wage bill, currently gobbling about 90% of public revenue, is unsustainable.

“It is important that Zimbabwe resolves its debt crisis. The debt crisis in Zimbabwe is not about debt per se because we defaulted way back in 1999 and nobody is interested in our money. We owe the World Bank about US$1,2 billion. But they are not really interested in that money. We defaulted way back. We owe the Paris Club of lenders about US$5,4 billion. But the truth of the matter is that they are not really interested in that money. They are using it as leverage to extract genuine reform. Let us do the reforms we have to do as Zimbabweans.”

With Zimbabwe’s drive to implement the International Monetary Fund Staff-Monitored Programme (SMP) that was tailormade to return the country to macro-economic stability now dead in the water, Biti said the only holistic option left available to end Zimbabwe’s economic meltdown was to “find a political solution”.

The opposition contests President Emmerson Mnangagwa’s legitimacy, after he narrowly won the 2018 disputed elections.

The SMP was agreed in 2019, with Zimbabwe committing to implementing sweeping reforms to revive the floundering economy. However, the country has failed to satisfy key benchmarks of the programme, particularly reining in ballooning expenditure.

“The Staff-Monitored Programme agreed in May of 2019 is dead. Since 2014, Zimbabwe under Zanu PF has gone through four SMPs like diapers and everyone is now realising that the diarrhoea won’t stop unless you find a political solution,” Biti said.

“Anything else that doesn’t address the political solution is a waste of time. There must be an address of the political situation. That is the elephant in the living room.”

The former Treasury boss also attributed the depreciation of the Zimdollar to a raft of measures recently deployed by the central bank to stop the haemorrhaging of the local unit and the foreign currency dealings on the black market. The measures include the suspension of several accounts suspected of fuelling trade on the parallel market as well as the scrapping of the fungibility of Old Mutual, Seed Co and PPC stocks on the local bourse.

“It is shifting the deck when the Titanic is sinking (efforts by the RBZ to arrest the collapse of the Zimbabwean dollar).These measures are actually making the parallel market rate go on fire. On May 15, the black market rate was US$1:ZW$40, today in early June the rate is US$1:ZW$85. So it has grown by more than 100% in less than three weeks,” Biti said.

“One of the things that have exacerbated this has been the measures taken by the Reserve Bank, in particular the restrictions on Zipit transactions, EcoCash transactions, and closure of EcoCash agents and the restriction of Real-Time Gross Settlement (RTGS) transactions. It does not work. It will not work. There is a shortage of foreign currency in this country because we are not producing.”

More than a decade after the country abandoned its hyperinflation-hit currency, Biti said, Zimbabweans had lost confidence in the local unit. “There is a problem of foreign currency here because government has stopped people using it. And you have asked people to use a currency they do not have confidence in. The currency that was caught in flagrante delicto (red handed). It does not work. So you can’t force that currency again on people. It is a dog’s breakfast that many dogs won’t touch.”