BY TATIRA ZWINOIRA
UNITED States research arm, the Congressional Research Service (CRS), has condemned the Zanu PF-led government’s economic policy record as “poor”.
The CRS is a public policy research arm of the United States congress and works primarily and directly for members of congress, its committees and staff on a confidential, non-partisan basis.
“(Zimbabwe President Emmerson) Mnangagwa has prioritised efforts to rescue the badly ailing economy, but Zanu PF’s economic policy record—which has featured land seizures and abrupt policy shifts—is poor. Zanu PF oversaw a 66% contraction of the economy from 2000 to 2008, featuring hyperinflation that hit an annual rate of 471 billion percent in September 2008,” a recent CRS report titled Zimbabwe: A continuing crisis, read.
“The economy recovered rapidly under then Finance minister Tendai Biti of the MDC during a power-sharing government (2009-2013). Biti ended the use of the Zimdollar and replaced it with a system in which multiple foreign currencies were legal, but in which the United States dollar predominated.”
Currently, however, Zimbabwe’s economy is suffering from a plethora of challenges.
These include poor infrastructure, regulatory weaknesses, poorly managed State-owned enterprises, corruption, a poor investment climate, and a drought that has led to frequent power cuts.
It also includes eroding wages from a devaluing local currency, low consumer spending, high unemployment, and rising cost of living.
In that regard, the International Monetary Fund projects the economy to contract by 5,2% in 2019, while government places it at 2,1%.
“A key factor in the economic crisis has been an acute lack of cash caused by US dollar shortages. In 2016, to increase cash available for market activity, the central bank created a local unit of exchange called the ‘bond note’. The bank also has promoted the use of digital dollar bank credits,” part of the report read.
“Both bond notes and bank credits were officially equal to the dollar, but the market did not treat them as such. Over time, sellers charged more for purchases made with bond notes and bank credits than for those made with US dollars. This led to inflation, as a lack of US dollars forced people to use increasingly less valuable bond notes and bank credits.”
Government responded to this by merging bond notes and dollar bank credits into a single new currency, the “RTGS dollar” in February and allowed its exchange rate to float, part of the report read.
However, the same problems that had afflicted bond notes and bank credits also affected the RTGS dollar.
Its value rapidly plunged relative to the United States dollar, goods shortages worsened, and prices soared with annual inflation of nearly 176% as at the end of June.
To counter inflation and the RTGS dollar’s persistent slide, the government ended the multi-currency system in late June 2019; it renamed the RTGS dollar the “Zimdollar” and made it the sole legal tender.
“This change has raised fears of a return to hyperinflation—and may also be unlikely to address other factors underlying the economic crisis. These include low production due to the closure of many firms in recent years, which has shrunk the supply of goods and increased already high unemployment rates. (Many people now make a living in the informal sector, which may now employ more than 90% of the labour force),” part of the report read.
Mnangagwa has been on record as stating that it will take time to address the deepening economic crisis which Finance minister Mthuli Ncube says is being done through austerity measures and fiscal consolidation.
However, economists have warned these measures are impoverishing Zimbabweans more.