THE dramatic fall of the Zimbabwe dollar has elicited a predictable response from the government, with panic-stricken officials reverting to their default settings of command economics, law-and-order scapegoating, knee-jerk decrees and finger pointing.
When you see an impala sprinting headlong into a blazing veld fire, you must know that something more frightening than scorching heat is after its life. What exactly has spooked these public functionaries?
The parallel market exchange rate has run amok, giving the authorities sleepless nights. So serious is the problem that the Reserve Bank of Zimbabwe (RBZ) has since revised its inflation projections. The central bank says the annual inflation rate could end the year between 35% and 53%, up from an earlier estimate of 25% to 35%.
Memories are still fresh of the runaway hyperinflation which decimated savings, obliterated pensions and plunged citizens into untold poverty. Many have not yet recovered from the traumatic experience of that chaotic era.
The philosopher George Santayana’s timeless truism comes to mind: “Those who cannot remember the past are condemned to repeat it.” In the first few months of this year, Zimbabwe appeared to have tamed the beast of chronic high inflation.
What has gone wrong? Although there are many factors at play, the government must shoulder most responsibility. Our point of departure is that the macro-economic fundamentals seemed to have relatively stabilised.
This, of course, is not to say stability had been achieved. Not at all. Nuance is key. The economy’s capacity to generate foreign currency has been quite a revelation. Through a combination of diaspora remittances and an uptick in export receipts, forex inflows have firmed remarkably. In fact, some economists estimate that the country is on track to generating US$8 billion this year. Nothing to be sneezed at.
Not many economies in Africa are registering those sorts of numbers. The big question is: What is propelling the parallel market rate? This week, the prominent economist Gift Mugano told legislators at a pre-budget seminar that the major culprit is the government itself.
Mugano says arresting every forex dealer is not feasible, considering that there are 5.7 million Zimbabweans operating in the informal sector. Will the authorities arrest all these people? He says the government’s handling of the bumper maize harvest is at fault.
The same point has been raised by another leading economist, Brains Muchemwa. After farmers are paid in Zimdollars, they rush to the parallel market for US dollars. Mugano is advising Treasury to find a better way of handling the pricing of maize, wheat and cotton.
This year alone, the government needs ZW$64 billion to pay for the maize harvest at ZW$32 000 per tonne. When that money is offloaded into the streets, the Zimdollar will scream. Another causative factor identified by analysts is the RBZ’s delay in clearing the forex auction backlog.
Desperate companies are forced to resort to the parallel market. Another possible cause is the huge amount of money being transacted by the government in paying contractors for infrastructure projects. These companies — both local and foreign — are paid in Zimdollars, which they change into greenbacks on the alternative market. The government knows who these players are. It is fairly easy to identify them.
More importantly, the authorities must devise a sustainable solution, instead of pandering to the base instincts of a pointless blame-game. The RBZ can issue threats daily but, as we saw during the crazy days of hyperinflation, a 21st century cannot be governed by decree.
Confidence is the currency of economic prosperity. Zimbabwe is deficient in that all-important attribute. The sooner the government stops tinkering with mere symptoms and addresses the real malady, the better for national economic survival.
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