- ZWL market liquidity remains above the roof
- Government has a record of upsetting money supply during election times
- Lack of confidence in ZWL and officials stabbing economic growth
Harare- Zimbabwe Coalition on Debt and Development (ZIMCODD) says Zimbabweans should brace for a sustained inflationary environment as the 2023 harmonised general elections nears.
In its May 2022 monthly economic review, ZIMCODD said that government will resort to the cranking machine to fund its electoral campaigns as per its tradition.
Currently, the government is using housing and road projects as a forerunner to its election campaigns. Housing, and especially road rehabilitation road programs gained momentum in mid-2021 and early 2022 since the election of President Emerson Mnangagwa in office in 2018 which practically is perfect timing for election time.
“The public’s expectation of the possibility of policy slippages ahead of the 2023 general elections is gradually becoming a self-fulfilling prophecy,” ZIMCODD said in a statement accompanying its May 2022 monthly economic review.
The government will also need a big chunk of money to fund the Presidential Input Scheme and Command Agriculture, a scenario that is going to upset the broad money supply.
ZWL market liquidity remains above the roof as the broad money supply continues to mount by more than 100% year on year, a major inflation amplifier.
“Therefore, authorities should continue to withdraw excess ZWL liquidity to ensure a money supply growth rate that is in tandem with the growth of economic activity in the real sector," said ZIMCODD
RBZ stats review that broad money rose by more than 100% year-on-year since Jan 2022 hitting 113.4% in January and 23.8% in February while by 151.4% in March.
Besides financing the above-mentioned projects, last month government announced plans to pay gratuities to over 160 000 war veterans, one of its major campaigning arms. In 1997 when the government of Robert Mugabe did the same, the Zimbabwean dollar started heading southwards.
Historically, the government has a record of tempering RBZ policies forcing the governors to resort to the cranking machine to cushion, especially the security agents who are also pivotal in ZANU-PF campaigns.
Between 2012 August and 2013 August the election period, the money supply increased by 6% from US$3.6 million to US$3.9 million. However, the money supply saw a fingertip growth as this was the time of government of national unity so the government expenditure was tightened by the opposition.
From June 2017 and June 2018 towards another elections period, RBZ increased its money supply by 41% from US$6.5 billion to US$9.1 billion with a month-on-month increase of 6.84%.
Meanwhile, in May 2022 year-on-year inflation entered the three digits territory, a record high since June 2021 while from a month-on-month basis, inflation soared to 21% in May 2022, making it the second month of double digits inflation, the highest outturn since July 2020 when it was recorded at 35.5%.
“Granular analysis shows that the current inflation crisis started manifesting in 2019 driven by the Reserve Bank of Zimbabwe (RBZ)’s reckless liquidity and exchange rate management coupled with Treasury’s fiscal indiscipline and short-term financing model for its major projects and programs,” said ZIMCODD.
However, government officials continue to deny responsibility for pitting the economy in the toilet.
During the presentation of the latest fiscal measures by President Mnangagwa on 7 May 2022 when lending was suspended, the blame was shifted to people who are not loyal to the Second Republic while Governor Mangudya was on record a forty-night ago blaming the Ukrainian war for the inflationary pressures currently haunting the country.
According to lobby groups like the Confederation of Zimbabwe Industries (CZI), one of the drawbacks effects on the economy is the government’s failure to accept responsibility. They are the ones in the kitchen while they keep blaming neighbours for spoiling the soup.
The parallel market is championing the rise in inflation with US$: RTGS rate soaring between ranges of 520-560.
However, it is worthy to note that as far as government is responsible for the rise in inflation due to reckless economic policies, command economics courtesy of Statutory Instruments and mismanagement of ZWL liquidity and weak exchange rate management mechanism in place, inflation, is also being caused by behavioural economics, something that RBZ cannot curtail.
Since 2019 when the Zimbabwe dollar was reintroduced by Mangudya, the market started rejecting the currency fuelling black market rates, which in turn are driving up inflation. Due to 2008 memories, the public has no confidence in whatever policies officials will put to stabilise the currency.
The hard truth that government should accept is that the Zimbabwe dollar has failed dismally to meet its two targets, to be accepted as a medium of exchange and as a measure and store of value.
Therefore, the government should adopt either the Rand or US dollar to bring stability and curtail the prevailing headwinds, particularly for the short term until economic fundamentals are in order.
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