Ten days ago, Zimbabwe’s new Finance Minister Mthuli Ncube was talking of abolishing bond notes and launching currency reforms before the end of the year. But on Tuesday, President Emmerson Mnangagwa ruled out any such reforms.
In his address at the opening of Parliament, President Mnangagwa reaffirmed the government’s commitment to the so-called multi-currency system or dollarization “until the current negative economic fundamentals have been addressed to give credence to the introduction of the local currency”.
The economic fundamentals he listed are the familiar ones set out repeatedly in recent years by government ministers and the central bank – a” sustainable” fiscal position, foreign currency reserves equivalent to 3 to 6 months import cover ($1.4 to $2.7 billion) and “sustainable consumer and business confidence”.
As the President spoke the premium on US dollars relative to RTGS balances or electronic money stuck in the banks, hovered close to 100% while that between Zimbabwe’s ersatz currency (bond notes) and the US dollar was 88%.
The President announced that Zimbabwe has taken on another $500 million in foreign loans to bolster the balance-of-payments, seemingly confident that a country, already in what the IMF calls “debt distress” with a debt-to-GDP ratio exceeding 100%, can weather the storm.
But the track record of emerging market governments who take on the foreign currency markets is littered with failures and it is not easy to see why Zimbabwe should be any different.
The record of macroeconomic mismanagement, including under the New Dispensation since the military coup last November, is stark. Domestic debt has escalated alarmingly; the balance-of-payments gap is widening; more and more is being borrowed offshore by private as well as official entities
In the 2018 budget presented nine months ago, the former finance minister, Patrick Chinamasa, promised to cut the budget deficit from $2.5 billion, which was hugely understated at the time to $671 million this year.
But just before he left office after losing his seat in the July 31 election, Chinamasa’s ministry revealed that government spending, far from being cut, had jumped 57% in the first half of the year. The deficit for the 6 months was $1.4 billion and forecasters expect it to top 3 billion – more than 16% of GDP – in 2018, especially when the extra $300 million for the 17.5% pay rise for civil servants and the 20% hike for the military and police, is taken into account.
Such profligacy hardly inspires confidence in the fiscal consolidation promised by the president and his new cabinet.
Policymakers believe that they can maintain the fiction that the local currency – electronic balances and bond notes – really does trade at par with the US dollar. In the parallel market however, the over-valued local unit is worth less than 40 cents.
The official position, set out by Mr Mnangagwa, is that this situation can be maintained until the budget deficit has been cut and foreign reserves accumulated. But given that the country is staring down the barrel at a trade deficit of well over $2.5 billion this year – it was $1.7 billion in the first 7 months of 2018 – it is going to take a long time to build up reserves of $2 billion or more.
This is the catch-22 position in which Zimbabwe finds itself. Can it wait 2 years or more to meet President Mnangagwa’s economic fundamentals before abandoning the unsustainable dollar parity, or are the fundamentals unreachable without a competitive exchange rate?
- The Source
China set a 10 percent tariff on U.S. liquefied natural gas (LNG) imports, extending a trade dispute into energy and casting a shadow over U.S. export terminals that would propel the United States into the world's second-largest LNG seller.
Beijing on Tuesday said it would tax U.S. products worth $60 billion effective Sept. 24 in retaliation for tariffs imposed by U.S. President Donald Trump in an escalating trade war.
The rate was smaller than the 25 percent tariff China had touted earlier, which offered some relief and helped shares in listed U.S. LNG companies climb.
The tariffs undermine Trump's drive to use U.S. shale oil and natural gas to turn the United States into a global energy leader. The U.S. is on track to export over 1,000 billion cubic feet (bcf) of gas as LNG in 2018. One billion cubic feet is enough to fuel about 5 million U.S. homes for a day.
But China, which purchased about 15 percent of all U.S. LNG shipped in 2017, is now on track to buy less than 100 bcf of U.S. LNG in 2018, less than last year, according to Thomson Reuters vessel tracking and U.S. Department of Energy data.
The country has taken delivery from just four vessels since June versus 17 during the first five months of the year. Proposed U.S. export terminals, many expected to supply Chinese customers, were expected to account for 60 percent of all new LNG production coming to market by 2023, according to industry data.
LNG, which involves super-cooling natural gas so it can be transported by ship rather than pipeline, has become one of the fastest growing commodity trades as nations seek cleaner fuels.
The tariff's extension to an energy commodity much in demand in China was a worrisome sign for trade relations and for billions of dollars in proposed U.S. terminals, said trade group executives.
Including LNG "is a good indicator of how serious things have gotten between the U.S. and China on this trade issue," said Charlie Riedl, executive director of Center for Liquefied Natural Gas, a group whose members include Cheniere Energy, Chevron and Exxon Mobil.
"While we would like to see this resolved quickly, I don't see that happening right now," said Riedl, speaking by phone from a natural gas conference in Spain. The longer the dispute lasts, the less likely proposed projects will find financial backers, he said.
Analysts say the tariffs will particularly hit plans by U.S. companies, such as Cheniere Energy (LNG.A), Sempra (SRE.N) and Kinder Morgan (KMI.N), to build new terminals or expand existing ones by adding processing units.
"Some commercial agreements may be on hold until there is more visibility," said Stacey Morris, director of energy research at Alerian Indexes.
Cheniere, Kinder Morgan and Dominion Energy declined to comment.
Ivory Coast is planning to remove all private representation from the board of its cocoa regulator as the world’s biggest grower prepares to coordinate the marketing of beans with neighboring Ghana, according to two people familiar with the matter.
Based on the proposal that the government intends to implement next year, cocoa grinders, exporters and lenders will no longer have delegates on the board of Le Conseil du Cafe-Cacao, said the people, who asked not to be identified because they’re not authorized to speak publicly about the matter. The government is of the view that the private sector’s interests are conflicted and will obstruct reforms that are planned to harmonize sales with Ghana, said the people.
Spokesmen for the government and CCC didn’t answer calls seeking comment.
The plans follow an undertaking between Ivory Coast and Ghana, the biggest cocoa producers, on cooperation to exert more influence over the global market through the harmonization of marketing systems. Ivory Coast was forced to cut pay for its estimated 800,000 farmers by more than a third last year, following a slump in prices.
The West African neighbors operate very different marketing systems for their cocoa, which means that attempts to harmonize them would probably require that one or the other change. In Ghana, the regulator purchases all the cocoa that farmers produce, while Ivory Coast auctions the right to export beans and regulates sales. The two countries haven’t communicated proposals on how a harmonized system will operate.
Private-sector stakeholders are yet to be formally informed about the proposed changes to the CCC board, said the people. The government will encourage shippers, lenders and grinders to form an independent consultative body to communicate regularly with the regulator about sector issues, said the people.
Apart from the representatives for grinders, shippers and lenders, the CCC board also have seats for delegates of President Alassane Ouattara, Prime Minister Amadou Gon Coulibaly, farmers and the ministries of agriculture, commerce, industry and economy and finance.
In a first step toward the harmonization of their sectors, Ivory Coast and Ghana undertook to announce the minimum pay for their producers at the same time ahead of the new season’s start in October.