The country’s deficit is growing and it may finally need to join the rand area, writes Peter Fabricius.
Johannesburg - We thought we had seen the last of Zimbabwe’s fantastic Monopoly money in 2008 when the country’s reserve bank was printing notes of up to Z$10 trillion face value each.
That was to try to keep the presses up to speed with plummeting devaluation and galloping inflation that was running into billions of percent.
That was the last gasp of the Zimbabwe dollar before it collapsed completely and the country converted to US dollars, mainly, as well as the South African rand and a few other currencies thrown in for good measure.
That change - plus the advent of more sensible economic policies brought in by the opposition Movement for Democratic Change (MDC) when it became part of the government of national unity which took office in 2009 - helped to stabilise the economy after a fashion.
But since President Robert Mugabe’s Zanu-PF returned to sole power after the 2013 elections, Zimbabwe’s economy has been rapidly going downhill again.
With virtually nothing to export and rising imports, the country has run up a trade deficit of about $3 billion (R44.5bn) and has almost run out of US dollars to pay for it. Meanwhile, Zimbabweans have shunned the rand, not only because it’s been falling against the US dollar but because Zimbabweans so badly resent their more successful southern neighbour.
Last year the reserve bank issued “bond coins” in US cent denominations so shops could stop giving change in lollipops and the like.
Then last week reserve bank governor John Mangudya announced his bank would issue special “bond notes” at par with the US dollar, to try to ease the cash crisis. He insisted that this was not new currency, ie that he was not re-introducing the Zim dollar via the back door.
But few economists or other commentators seem to believe him. They suspect this is just a ploy to allow the reserve bank once again simply to print as much money as it needs to pay the country’s bills.
Tapiwa Mashakada, the MDC’s spokesman for finance, said it was “crystal clear that the government is warming the printing presses. History repeats itself.”
Bank customers are equally sceptical, rushing to withdraw their real US dollars to hide them under the mattress. The banks have anticipated this by reducing US dollar withdrawals to a tenth of what they allowed in January.
Some are trying to defend Mangudya, insisting that he will refuse to obey Mugabe’s orders to print limitless bond notes.
They point out that he has promised to print only $200m worth of the new bond notes, and that all of these are backed by the Cairo-based African Import Export Bank.
But surely $200m will not be enough to pay for imports?
Unless the government introduces drastic import controls, which it has so far shown itself unwilling to so.
Instead, Zanu-PF has been consistent and totally reckless in spending money it does not have, and blithely destroying the export resources it does have; starting with the huge extra-budgetary pension payouts to war veterans and the costly military intervention in the Democratic Republic of Congo in 1998, through to the seizure of almost all the land from productive white farmers starting in 2000.
And so what will Mangudya do when the $200m runs out, as it surely must? It will be hard to resist the pressure to keep the printing presses running.
Or that may be the moment when Zanu-PF finally has to swallow its pride and do what it should have done from day one - join the rand monetary area.
Mangudya already hinted at that possibility when he said last week that from May 5, 40 percent of all new US dollar receipts will be converted to rand.
If Mugabe doesn’t do this, he might just precipitate the death throes of the Zanu-PF regime as unpaid securocrats, until now kept sweet by the dregs in the coffers, finally turn on him.