10 major causes of Zimbabwe’s financial crisis

Movement for Democratic Change Shadow Minister for Finance Tapiwa Mashakada has listed the payment of $6.4 million towards fees for children of war veterans and the implosion within the Zimbabwe African National Union-Patriotic Front as two of the major causes of the current cash crisis in the country.

He also listed indigenisation, illicit flows, the pouncing of money banked by tobacco farmers, the Lima agreement to pay off the country’s debt as the other reasons.

Below is his full statement:

Monday, 09 May 2016

10 Fundamental causes of the financial crisis in Zimbabwe

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by Dr Tapiwa Mashakada, MDC Shadow Minister of Finance,

The banking sector plays an intermediary role in the economy through a process called financial  mediation. In lay man terms this simply means mobilizing surplus deposits and lending to borrowers. Moreover, these deposits can be short term, medium term, long term, fixed or on-call.

The majority of the $6 billion dollars annual deposits have been in the form of demand deposits, which means that depositors can withdraw them on demand at any time. In other words banks must ensure that they maintain healthy balance sheets to avoid a situation where liabilities exceed assets.

The whole banking system is therefore strictly regulated and supervised by the Reserve Bank in order to maintain financial stability and confidence in the banking system.

Beginning January 2016, public and business confidence started to wane due to a plethora of reasons. Peoples' confidence in the banking system deteriorated fast and things came to a head in May 2016. The reasons for the collapse of confidence in the banking sector can be unpacked as follows:

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