Zimbabwe’s economy is in terrible shape and that is an understatement. There’s panic, uncertainty and spculation. Prices of basic commodities are rising. Fuel is in short supply. Millers are rationing flour so that bread is prioritised ahead of luxuries like biscuits for the limited supplies. There is a serious medical drugs shortage, with pharmaceutical wholesalers reported to have suspended operations. A cash shortage which has been a problem for few years has worsened.
All these shortages are largely because Zimbabwe has run out of foreign currency. Zimbabwe may be open for business, as President Mnangagwa is fond of saying, but signs indicate that the country is broke. It cannot pay its debts. If it were a company, it would probably be under administration, a halfway for ailing corporates, during which it is ring-fenced from creditors while it gets breathing space to recover.
For a country fresh from an election, these are odious circumstances. The election was supposed to be a rebirth of Zimbabwe following 37 years under Robert Mugabe’s authoritarian rule and a coup which toppled him last November. It was plain then, even as they promised a new democratic era, that those who took over from Mugabe had no intention of handing over power through an election. The sole purpose of the election was to legitimate the new regime led by Mnangagwa. However, it all went up in smoke.
The election turned out to be another déjà vu moment for Zimbabweans. Just like in 2013 and previous elections, the national mood after the elections is sombre. They had seen it all before. And just like after previous elections, they have to carry the cost of electoral theft and the consequent legitimacy deficit. If Zimbabwe’s election had been properly conducted, it would have been widely accepted and the process of legitimation of the regime would have been a lot easier.
ZANU PF and its band of apologists might refuse to accept it but Zimbabwe’s primary problem is political. A careful study of the economic crisis would show that its origins pre-date the current adversarial relationship between ZANU PF and the MDC. The seeds were sown well before the arrival of the current political dynamics, whose effect has been to worsen it. We have a problem of bad politics and atrocious governance. The current set of problems and a looming economic Armageddon is only the latest manifestation of bad politics and bad governance.
This week, in attempts to fix the new Finance Minister, Mthuli Ncube issued a Fiscal Policy Statement while the central bank Governor, John Mangundya issued a Monetary Policy Statement. Both statements were bleak, reflecting a severely distressed economy. The country is in a serious debt crisis. The total public debt is $16.9bln, with $7.4bln of it being foreign debt while £9.5bln is owed to local creditors. This domestic debt has risen from just $275.8mln in 2012. This means the country has been on a borrowing spree, although there is nothing significant to show for it.
A lot of the domestic debt was accrued through issuance of treasury bills (TBs). In 2016, the value of borrowings via treasury bills was $2.1bln. By August 2018, the value had risen to $7.6bln. This means $5.5bln worth of TBs were issued in just under two years.
Zimbabweans wonder what the government did with the $9.5bln borrowed in the last 6 years. That’s because much of it has been used up to finance recurrent expenditure. According to the Finance Minister, the civil service wage bill takes up at least 90% of government revenue. There is a huge budget deficit, which the government has had to finance through borrowing. Now the Minister wants to cut the deficit through growing the tax base and cutting spending. Reuters reports that there was a spending spree in the run-up to elections which is worrying.
Some of the spending was totally unnecessary for a government facing a serious economic crisis – hundreds of imported vehicles for traditional chiefs are hardly a priority in a country failing to buy medical drugs. But that’s the moral hazard of depending on donors. More than 90% of drugs in public hospitals come from donors. The government has no incentive to prioritise buying drugs because there is someone doing it for them. Donor dependency simply fuels recklessness on the part of our governments.
In credit terms, the country is a delinquent debtor. It first defaulted on its repayments to the International Monetary Fund in 1999. That’s almost 20 years ago. It managed to repay the IMF arrears in recent years but arrears to the World Bank, African Development Bank and the Paris Club remain. Unable to satisfy creditors, lines of credit remain firmly shut.
The new Minister must break with the past and start publishing all loans taken and guarantees given by the government in accordance with the Constitution. His predecessor was not transparent in this regard and citizens are in the dark over the nature of the obligations that Zimbabwe has taken in the past. Some of this could be odious debt. The Minister must publish all loans and guarantees – past, present and future. It’s part of the social contract with citizens as enshrined in section 300 of the Constitution. Zimbabweans deserve to know whom they owe and on what terms. After all they are being heavily taxed to meet these bills.