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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