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
Zimbabwe’s new Finance Minister Mthuli Ncube may scrap the quasi currency bond note and liberalize exchange controls as part of reforms he plans to implement by end of this year, a state-owned weekly newspaper reported on Sunday.
The southern African nation, which dumped its currency in favor of the U.S. dollar in 2009 following years of hyperinflation, introduced bond notes in November 2016 in a bid to ease acute shortages of cash. The shortages have, however worsened while a black market continues to thrive.
The notes are backed by U.S. dollars loaned to the government by the African Export and Import Bank, and can be used like cash.
Officially, they are pegged to the dollar at a rate of 1:1, but on the street $1 fetches up to 1.50 in bond notes.
“I am very clear that there have to be currency reforms and the current currency approach is not working,” Ncube told the government-owned Sunday Mail.
He said he would explore three options: either Zimbabwe joins the South African rand union; uses only the U.S. dollar while removing bond notes from circulation, or reintroduces the Zimbabwean dollar.
Ncube however said a local currency would only be introduced when the country has enough foreign reserves and achieves macro-economic stability. Zimbabwe currently has two weeks import cover, according to central bank data.
Ncube, a former senior executive with the African Development Bank, was appointed by President Emmerson Mnangagwa on Friday and is expected to lead Zimbabwe’s economic recovery program.
He was not immediately available to comment when Reuters tried to contact him.
A dwindling supply of cash dollars has led to banks limiting daily withdrawals to as little as $30 in bond notes. Companies are struggling to pay for imports and foreign investors cannot repatriate dividends or profits.
There are $350 million worth of bond notes in circulation, according to latest central bank figures.
Zimbabwe's newly-inaugurated President Emmerson Mnangagwa on Friday named respected economist Mthuli Ncube as finance minister to revive the country's battered economy in the first cabinet since his election in a disputed vote.
Ncube, an Oxford University professor who is a former vice president of the African Development Bank, has the tough task of reviving an economy wrecked under Robert Mugabe, who was ousted last year.
The country is battling an economic crisis that includes cash shortages, rising prices of basic commodities, mass unemployment, lack of investment and a shattered infrastructure.
Mnangagwa, who has vowed fixing the economy as his priority, announced sweeping changes to his cabinet after his victory in the July 30 election.
"We want to grow, modernise, mechanise our economy," he said.
"In the next five years, we should uplift quite a number of our people who are in the marginalised category, (and) uplift them into middle class."
Mnangagwa's line up has widely been welcomed by crises-weary Zimbabweans.
"Those are good choices," said John Robertson, an independent economist.
"It does seem to be a good start, (but) it depends on how much authority he (Mnangagwa) will give his ministers."
Mnangagwa dropped several faces that had dominated government over four decades of Mugabe's rule and made changes in the ministries of defence and home affairs, but left untouched the key posts of foreign affairs and lands, held by retired army chiefs.
The new defence minister is Oppah Muchinguri-Kashiri, a former liberation fighter who had held various posts, including that of environment, under Mugabe.
"He has been bold enough to discard people who were known for corruption," said Godfrey Kanyenze, of the Harare-based Labour and Economic Development Research Institute think-tank.
Former Olympic swimmer Kirsty Coventry, 34, was named sports minister. Mnangagwa, 75, said he believed the new cabinet trimmed from 33 to 20 was "ideal for our current challenges".
The Mugabe-era stalwarts dropped include former finance minister Patrick Chinamasa, former information communication technology minister Supa Mandiwanzira and former home affairs minister Obert Mpofu.
Emmerson Dambudzo Mnangagwa’s inauguration as Zimbabwe’s second president and commander-in-chief consummated power for the main beneficiary of the November 2017 coup that forced Robert Mugabe’s long delayed retirement.
Zimbabwean scholar and activist Brian Raftopoulos’ remarks during a public meeting at the University of Cape Town five years ago come to mind. As all were wondering what would happen in the weeks before the much-marred 2013 Zimbabwean election, Raftopoulos argued that
Zimbabwe’s military-economic élite – a new capitalist class at an early stage – will not be removed just with elections.
Mnangagwa’s next five years may see this prediction reach its endpoint. His billboards said he would deliver the new country Zimbabweans want: the promise remains poised on tenterhooks. The classic dynamic in politics everywhere – the interplay between militarisation and democratisation – looms large.
Raftopoulos’ proviso that a “partnership to prevent militaristic moves” was necessary in 2013 may be more apposite (and trickier) now than ever. The prospects for the next elections in 2023 (barring constitutional changes – possible because Zanu-PF MPs make up more than the two-thirds in Parliament needed to change that hard-won document) could take stark contours.
The contest is, and will be, far beyond a battle of two parties and their main protagonists. It will be between increasing democratic participation – starting with the classic precepts of free and fair elections – or a securitisation process much less stealthy than before.
This is the most important point to consider about Zimbabwe’s medium-term prospects. The others are moves within Zanu-PF itself, dynamics within the MDC-Alliance and what happens to the economy.
After the Constitutional Court’s ruling confirming Mnangagwa as the “duly” elected president, MDC-Alliance leader Nelson Chamisa suggested that he and Mnangagwa needed a serious discussion that would lead to the breaking of Zimbabwe’s legacy of violent and jimmied elections.
It’s still an open question whether such a discussion would lead to a coalition government, or the space for the faction-ridden MDC-Alliance to flex the muscles of a loyal opposition and to rebuild. Its bad experience during the 2009-2013 “government of national unity” might militate against a repeat. But the wider need to cushion the new régime from militarisation is worth considering.
The cautionary note to the MDC-Alliance about any such new dispensation might be: don’t neglect your badly fractured party and its allies needing to be in the fold; and don’t sideline your enemies within precipitously.
Meanwhile, many among the MDC-Alliance and its supporters fear the Zanu-PF machine is poised to wipe them out permanently.
Much related to the above and perhaps the key, is Zanu-PF itself. The battle between Mnangagwa and Vice-President Constantino Chiwenga could be overdrawn, but the tragic killings of August 1 have thrown it into stark relief.
Can no one in power know who shot the demonstrators and innocent bystanders? Could Chiwenga really say that news of the shootings was “fake” and aver the MDC-Alliance deployed cadres to do the shooting to discredit Zanu-PF?
In any case, a military unit came in, because - so says “the state” - the police could not contain the violence. On site observers, however, attest that the police and the demonstrators were enjoying a friendly encounter, including selfies and dancing. Then the soldiers arrived.
The journalists who were there say the men with guns were the Presidential Guard, under Chiwenga’s control: after they arrived and started killing, the violence and car burning ensued.
One analysis says this tragedy has exposed Zimbabwe’s parallel states. Furthermore, the senior soldiers have just had their retirements deferred. Perhaps Mnangagwa’s inaugural Freudian slip – when he failed to acknowledge his vice- presidents – revealed his inner desire to be rid of Chiwenga.
One can only hope that the promised commission of inquiry will unearth what happened, and deal with it summarily.
The Patriot, one of the fractured ruling party’s media mouthpieces, reveals some party propagandists’ thinking about democracy and human rights. ‘Unmasking CSU’ (Counselling Services Unit, a long-serving source of succour for wounded democracy activists, as well as an advocacy NGO) paints the CSU and other human rights organisations writing “fake reports” to fan “tribalism and violence to achieve regime change”. Only words? If they turn into bullets Zimbabwe will have stepped down the ladder a long, long way.
Ticking like a time bomb is the ruined economy. No real money and a gargantuan number of unemployed embedded in the precarious “informal sector”, if they’re not eking out a penurious peasant’s existence. Their situation is so miserable that they are easily bribed – with flour and subsidised prices for their maize backed by intimidation from the chiefs – to vote.
Help from elsewhere might not be forthcoming either, or not helpful if it is. The rulers’ faux pas against the demonstrators has worried even its dedicated supporters in the wider world, imperilling even the demanding strictures of the International Monetary Fund and World Bank re-engagement. The “West” dangled the slightly less rigorous chalice of Heavily Indebted Poor Country status in front of Mnangagwa’s finance bureaucrats before the elections. Even though Zimbabwe is considered “too rich” for the easier debt-relief packages that comes with the status, broad hints were made. It’s doubtful if those whispers will get louder now.
In any case, as civil society activist Takura Zhangazha has written, IMF and World Bank policies are woefully inadequate for Zimbabwe’s problems: it is highly unlikely that its poor majority will be lifted to a decent life under their aegis.
As for private investment: Zimbabwe will again be fair game for the cowboys - from the east as well as the west these days.
Zimbabwe is in a precarious position. Its immediate future rests under the sword of Damocles. The threads of democracy have to be thickened. One hopes the chronicle of its demise cannot be foretold.
Zimbabwe’s annual inflation rate rose 1.38 percent to 4.29 percent in July 2018, latest figures from the Zimbabwe National Statistics Agency (ZImStats) show.
This was a significant upturn from the June 2018 figure of 2.91 percent.
On a monthly basis, the inflation rose 1.03 percentage points to 0.98 percent.
“The month-on-month inflation rate in July 2018 was 0,98 percent gaining 1,03 percentage points on the June 2018 rate of -0,05 percent,” said ZimStats in its monthly update.
Some observers have attributed the quickening inflation to the continuance of the parallel currency market.
Although the Reserve Bank of Zimbabwe (RBZ) has maintained the US dollar-bond note official rate at 1:1, cash shortages have resulted in a thriving black market for physical currency, both bond notes and United States dollar notes.
It is largely expected that the high demand for US dollars by both companies and individuals continues to push up the exchange rate.
United States President Donald Trump has signed into law a bill that imposes tough new conditions that have to be met before sanctions are lifted.
The Zimbabwe president Emmerson Mnangagwa has said that his country is open for business, but this new law – the Zimbabwe Democracy and Economic Recovery Amendment Act – could scupper those plans as far as the US is concerned.
The United States law says that in order for sanctions to end the election has to be “widely accepted as free and fair”. The other condition mentioned is that the army has to “respect the fundamental rights and freedoms of all persons and to be nonpartisan in character”.
In the days following the poll, six opposition supporters died in clashes with the army, which has led some to question about its neutrality.
Zimbabwe is also required to take steps towards “good governance, including respect for the opposition”.
The United States has criticised the treatment of opposition supporters and in particular key opposition figure Tendai Biti, who has been arrested in connection with the post-election violence.
“The United States government is gravely concerned by credible reports of numerous detentions, beatings, and other abuses of Zimbabweans over the past week, particularly targeting opposition activists”, State Department spokespersonHeather Nauert said.
“We call on Zimbabwe’s leaders to guarantee Mr Biti’s physical safety and ensure his constitutional and human rights are respected.”
The United States began imposing sanctions on Zimbabwe in 2001. The sanctions imposed in Zimbabwe target individuals, as well as banning trade in defence items and direct government assistance for non-humanitarian programmes.
However, Emmerson Mnangagwa’s pledge for free and fair poll has been marred by post-electoral violence that claimed seven lives after soldiers opened fire in Harare’s crowded streets last week.
Source: Report Focus News
A South African High Court on Monday overturned a decision by the government to grant Zimbabwe’s former first lady Grace Mugabe diplomatic immunity after she was accused of whipping Gabriella Engels with an electric cord.
Delivering his judgement on Monday, Judge Bashier Vally stated that the decision by the former Minister of International Relations and Cooperation Maite Nkoana-Mashabane, to grant Mrs Mugabe diplomatic immunity was inconsistent with the South African Constitution and should therefore be set aside.
“It is declared that the decision of the minister of August 19, 2017, in terms of the diplomatic immunities to recognise Dr Grace Mugabe immunities is inconsistent with the Constitution of South Africa. The decision is reviewed and set aside,” the judgment stated.
The former minster explained in court that Mrs Mugabe automatically qualified for immunity from prosecution by virtue of her status as the wife of a head of state.
She also argued that not awarding Mrs Mugabe diplomatic immunity might have serious implications for relations between South Africa and Zimbabwe.
Engels filed a court application challenging the government’s decision last August.
Mrs Mugabe returned to Zimbabwe immediately after South Africa granted her diplomatic immunity, allowing her to evade prosecution for assault and causing a row in South Africa where the opposition Democratic Alliance also challenged the ruling.
Mrs Mugabe denied assaulting Engels with an electric cable, saying an “intoxicated and unhinged” Engels had attacked her with a knife.
South African advocacy group Afriforum, which represented Engels, dismissed the allegations as lies.
According to Engels, an irate Mrs Mugabe burst into the room where she was waiting with two friends in a Johannesburg luxury hotel suite to meet one of Mugabe’s sons last August, and started attacking her with an electric cable.
Photographs taken by Engels’ mother soon after the incident showed gashes to the model’s head and bruising on her thighs.
Willie Spies, a lawyer for Afriforum, said the National Prosecuting Authority (NPA) should now take action to prosecute Mrs Mugabe and seek her extradition from Zimbabwe to South Africa.
Spies said if the NPA failed to take action, Afriforum would start proceedings against Mrs Mugabe.
“The ball is in their court now,” Spies said, adding that Afriforum had argued that Grace Mugabe committed the attack on Engles while she was on a private visit to South Africa and therefore did not qualify for diplomatic immunity.
NPA spokeswoman Phindi Mjnonondwana said the case was still in the hands of the police and had not yet been sent to the NPA for action.
However, NPA spokesman Luvuyo Mfaku said South Africa and Zimbabwe had previously cooperated on extraditing suspects from one country to the other.
Following the judgement, International Relations and Cooperation Department under Minister Lindiwe Sisulu said they were still studying the judgment.
The news from the South African court came as former president Mugabe (94), accompanied by his wife and daughter Mrs Bona Chikore, cast his vote at Mhofu Primary School in Highfield township, the first election that does not include his name on the ballot paper since the country gained independence from Britain in 1980.