• Measures are struggling to pay the price of stability
• Government continues blaming sabotage from retailers
• However, the real enemy of government to economic instability is itself through fiscal indiscipline

Harare- Following two months of enforcing economic measures to stabilise the local currency with the latest penalties enforced on the 14th of June targeting retailers who surge prices in Zimbabwe dollars, the embattled currency continues to register milestone declines against major currencies every week, both on the formal and parallel market. Within a period of less than a month, from the 11th of May to the 6th of June, a plethora of economic measures including the removal of excise duty on basic products, hiking of interest rates and liberating the auction market have been put in place.

Of more importance was the introduction of gold-backed digital coins to back the ailing currency, but to no avail. They are yet to discover their value in addressing the currency crisis.  The policies are failing to address the key issues which are back-stabbing the Zimbabwe dollar, the confidence crisis and fiscal indiscipline from the government.  The government is failing to live according to its means.

Despite all these measures, the Zimbabwe dollar continues hitting record lows. On the latest formal market rate on the 13th of June 2023, the Zimbabwe dollar depreciated by 38%, an all-time worst performance taking month-to-date losses to 57%. What it means is that retailers will also spike their prices in Zimbabwe dollars to chase the US dollar’s equivalent value. Therefore, issuing threats will not work because if retailers stop tracking the US dollar value against the ZWL depreciation, they will run out of stock and the nation reverts back to 2008 crisis, where shelves were empty.

So where is the government missing? This question was answered by Finance and Economic Development’s Minister, Professor Mthuli Ncube’s statements in London 2018. 

A day before Professor Mthuli Ncube came to office in 2018, as the first step to boom Zimbabwe's economic problems, he promised to scrap the Bond Note because it was not a good currency. According to Gresham’s Law, when bad money mixes with good money, the bad money chases the good money so Ncube promised to either join the Rand community or dollarise. However, everything changed the following day he came to office, joining the Mangudya’s Bond Note bandwagon. 

What the authorities are aware of but are not willing to accept is that the market has lost confidence in the Zimbabwe dollar and the authorities themselves, in this case, the Finance Ministry and Central Bank. Confidence is not addressed by economic measures but by addressing challenges faced by the Zimbabweans since Black Friday in 1997, when the local currency first plunged by over 70% within a day. 

Confidence crises

The Zimbabwean economic crisis is not stability measures-based but a confidence crisis. This crisis will make null and void all stability measures if not addressed. As long as the confidence crisis is not solved, stability will remain alien even if 1000 economic stability measures are issued every day. Due to fiscal indiscipline through quasi-fiscal activities and a budget deficit problem, the market has lost confidence in the Zimbabwe dollar, this makes the policies they put in to restore the economic stability less attractive. Fiscal indiscipline remains the big elephant in the room. 

 Because the country cannot borrow from the IMF, World Bank and the Paris Club, Zimbabwe monetises deficits by creating money or stealing taxpayers' money, which are prerequisites for economic decay. There is a simple economic principle, money in circulation should be equivalent to the pace of production in the country and the government should be able to live within its means.

A naked loss of good faith to the public by the authorities was the creation of the fiat currency, Bond Note pegged 1.1 with the US dollar. In February 2019, Ncube gazetted the Statutory 1nstrument 33 of 2019 which converted all debts to RTGS pegged equal to the greenback, a grand theft as the RTGS was backed by nothing. People lost billions of US dollars when there were conversions of currency in 2019 and billions in pensioners’ money during the hyperinflationary period of 2008. That cost the integrity of the Central Bank and Treasury. 

Since the 1997 war veteran saga which saw the government printing ZW$50 000 unbudgeted money for the war vets, it seems no lessons have been learned to date. In 2020, Ncube brought a financial adjustment bill of 10.7 billion dollars which the government spent without the approval of the parliament. In 2021 another financial bill of about 103 billion Zimbabwe dollars was presented. This attests to a lack of moral stamina and sanity in managing the cranking machine. 

The currency conundrum is neither political sabotage nor sabotage by retailers but a confidence deficit in the authorities through glutting the Zimbabwe dollar in the market, either by the issuance of Treasury Bills or quasi-fiscal activities. 

For instance, one of the gross miscalculated errors was the introduction of gold coins. The government-subsidised gold coins, resulting in a deficit which was financed through the creation of money, upsetting the principle of demand and supply. Gold coins were (and still are) nothing less than an arbitrage. Gold coins were sold at a loss. Over 90% of gold coins bought since their insurance on the 25th of May 2022 were in local currency, which, however, is losing value by the day. 

Because of a confidence deficit in authorities, the market has lost confidence in the banking system too. This is affecting the restoration of savings, as people are not encouraged to bank their money courtesy of the past years' reminiscences. Savings are key in eliminating exchange rate volatilities as instead of going to the parallel market to find foreign currency at inflated prices, people will just go and borrow in banks. 

Hence, of all the policy measures passed, none was strong enough to save the dire currency from a confidence deficit. 

What should be done

In order to restore financial stability and curtail price madness, then the government has first to dollarise the economy, and use a currency that the people already have confidence in. There is a need to dollarise and repeal S133 OF 2019. Even if the government is adamant about dollarisation, the economy has already dollarised itself. In their economic measures, both the Central Bank and Treasury have agreed that over 70% (78%) of local transactions are being carried in US dollars. This, in itself, shows the self-dollarisation of the economy. People lost confidence in their own currency; market forces will determine the currency of use. 78% in use is USD. 

However, the underlying question is whether the country has enough money to dollarise or not. According to the government, it has not enough money to dollarise as a chunk of US dollars is in the informal market. However, through interpreting Zimbabwe’s US dollar coffers, this seems to be an exaggerated misconception. Remittances from the diaspora contribute over two billion US dollars while last year alone, export receipts totalled 11 billion, a record increase. Zimbabwe is losing over two billion dollars through corruption and under a normal country where the rule of law applies, this money is enough to dollarise. But it should be cognisant that the US dollar use will only be effective in the short-term as by it being a strong currency, it makes our exports expensive and uncompetitive. 

Secondly, the government need to scrap the auction system and the surrender requirements to increase productivity and exports in the country. Though the Central Bank liberalised the auction system on the 6th of June 2023, the rate still trails the parallel market rate. An overvalued Zimbabwe dollar broadly undermines the scope for maximising structural efficiency and the growth of both the export industry and import substitution. The government needs to float the Zimbabwe dollar and allow it to find its natural mark and remove the fiction of the interbank rate. 

Scrapping the surrender portions (currently at 25% for exporters) and floating the local currency to find its own course will not only boost confidence in the authorities but the Zimbabwe dollar as well. Dictated economics died a long time ago. However, after scrapping surrender taxes, the authorities have to encourage exporters to bank at least 70% or more of their export proceeds. This will eliminate pressure on the parallel market and stabilise the exchange rate which is key in unlocking the Zimbabwe dollar stability. 

Another key area is addressing the debt crisis with more realism than idealism. One of the shocking realities is that government is not including the civic society, parliament and the Chinese in its debt settlement plan. Cumulatively, Zimbabwe has a foreign debt of circa US$18 billion and for this to be settled, there is a need to address the issues of human rights abuses, rule of law and corruption. Zimbabwe’s reforms are deceptive as they lean more on theoretical than practical. Debt clearance helps in filling budget deficits. Instead of creating money as a means to fill in debt deficits, the country will borrow from international players thus, maintaining fiscal sanity and managing the Zimbabwe dollar liquidity. 

None of the economic measures put has yet addressed the concern of confidence deficit. Hence, the economy does not need a plethora of economic measures but the authorities need to sanitise themselves first. All these economic measures, most of them, were put before and without addressing the confidence crisis, it is just a gamble of the economy by the government, a gamble which is going to bear no fruits at the end.

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