Sunday, 18 March 2018

ZIMBABWE TO BE BROKE BY YEAR END : EXPERTS


ZIMBABWE has been named among seven countries destined to go broke by year end if it does not address its basket of economic and financial woes, a United Kingdom-based company has said.

Love Money, a United Kingdom-based financial news service, named Zimbabwe alongside Equatorial Guinea, Haiti, Mozambique, South Sudan, Yemen and Venezuela as vulnerable.
The report listed reasons ranging from being a notorious economic basket case to a chronic lack of liquidity as the reasons behind Zimbabwe potentially going broke.

“Since 2000, Zimbabwe has gone from Africa’s booming bread basket to its most notorious economic basket case, running a gambit of financial disasters, from extreme hyperinflation to deep recession.

“Despite the ousting of President Robert Mugabe and a change in leadership in the country, the economic prospects for 2018 are anything but rosy,” Love Money said.
“In fact, the leadership transition is likely to trigger further instability, impacting on an already ailing economy, which is plagued by stupidly high debt, a chronic lack of liquidity and a bewildering unemployment rate, which some estimates put as high as 95%.”

A country becomes bankrupt when it has reached a stage where it can no longer pay the interest on its debt both internally and externally and convince anyone to lend it money.

A country can be broke due to either war or financial mismanagement by a government.

In Zimbabwe’s case, it is no secret that government has a long history of mismanaging finances as evidenced by its high wage bill, importing products that can be locally produced, excessive spending, borrowing, money creation, and high public debt.

Yet, there have been few changes implemented to fix the situation.

Addressing the Parliamentary Committee on Finance last Monday, Reserve Bank of Zimbabwe (RBZ) governor John Mangudya dwelled on some of the financial challenges plaguing government.

“The nature of Zimbabwe is that we are financing the fiscal deficit using either treasury bills or overdrafts at the Reserve Bank,” he said.

“Under normal circumstances, if Zimbabwe had access to foreign finance, which is what the narrative, mantra, that Zimbabwe is open for business is trying to achieve, let us open up the economy so that we can get foreign finance.

“When financing our deficit from foreign finance, Mr chairman, we won’t have a problem because there would be foreign currency coming into the country.”

Mangudya said Zimbabwe owed nearly all members of the Paris Club, saying Afreximbank had been bailing out the country.

“Afreximbank has helped this economy to be where it is today. this economy would be very unsafe without Afreximbank,” he said.

“The reason why we are where we are is that we do not have friends. I said over the past 18 years we did not have access to foreign finance.

“We would love to go to hedge funds, to borrow from other people, but we owe them money.

“If you go to the AfDB [African Development Bank], we owe them money — $607 million; you got to World Bank, we owe them $1,2 billion. Lucky enough those other institutions say that if you owe money they do not give money.

“…any country where we look, we owe them money. Wherever you look, just check, east to west to south wherever we look under the Paris Club, we owe all the Paris Club members money.

“Non-Paris club members, we owe them money; South Africa, we owe them money, Malaysia — so we have no access to foreign finance.”

The Paris Club has 22 permanent members.

As at March 31, 2017, the country’s public debt stood at $11,6 billion of which $7,5 billion was external debt while $4,3 billion comprised domestic debt.

Analysts say Zimbabwe can get lines of credit from bilateral and multilateral institutions if it clears its arrears.

Zimbabwe is also hamstrung by a rising domestic debt, a culmination of years of fiscal deficits.

The fiscal deficit is projected to reach $627 million this year and will be financed by the issuance of treasury bills.

In his 2018 national budget, Finance minister Patrick Chinamasa promised to address the wage bill through implementing a series of measures such as putting a freeze on recruitment, retirements, reduce the duplication of posts, cut fuel benefits, reduce the issuance of vehicles and cut foreign delegations, among others.

But, there has been slow movement in implementing these measures.

However, government consultant and economist Ashok Chakravarti said the country would not go broke but the foreign currency management system needed improvement.

“Chris Mutsvangwa [special advisor to the president] made a strong statement saying the Reserve Bank should not be involved in focusing so much in foreign exchange management, it is not their primary function and I agree with that view.

“This a situation where they are managing 35% and 65% with the banks based on some priority allocation, I do not think it is a good system at all,” Chakravarti said.

“We need to move to a more market-based allocation system and I think our forex problem could by and large disappear.

“We need some clear thinking about this, we cannot stick to old ideas that have come from our previous government.

“To give you one example, a lot of people who are exporting today they are being allowed to keep their foreign exchange and although it is not strictly according to RBZ regulations, they are actually reselling that foreign exchange to other importers at a premium.

“This is not the way you go about things. If you recognise that there is a foreign currency exchange and that there is a premium, then we should open it up, let us legalise it and regulate it properly.”

Financial expert Persistence Gwanyanya agreed that the country would not go broke but could be heading for a recession if the current situation persisted.
“If the situation does not change for the better, the economic situation may deteriorate.

“But, all the pointers would suggest that in the long term Zimbabwe maybe destined for improvement.

“If you look at the infrastructure and other capital investments that are coming up, they may suggest a better future for the country,” he said.

“But, in the short term, there are clearly challenges that the country is facing.

“The biggest challenge or the two challenges that Zimbabwe is facing can be categorised as the domestic financial position and external position.

“By the domestic position there is clearly a financial imbalance where we are spending more than what we are producing and for that matter we are spending a lot on recurrent items.” Standard

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