Mthuli Ncube now in a catch 22

It seems Ncube feels a need to deal only with concrete transactions in a hard currency, however valueless, that he and the government can try to control.

In June, he introduced a new Zimbabwean dollar, outlawing the use of the US dollar. This has already led to a rapid erosion of spending power, with the new currency trading at almost ten to one US dollar. He has defended his decision, although his critics remain many.

With the lack of incentives to small businesses that bridge the formal and informal economies, a huge number of families depend on salaries earned by public servants.

There are about 400 000 civil servants in Zimbabwe. Given the lack of real value in the Zimbabwean dollar, they probably live on less than US$2.00 a day. They and their families, not to mention the network of relatives in the extended family, cannot survive on that.

Ncube’s fixation with control shows the dead hand of a government that has run out of ideas and, above all, trust in entrepreneurial initiative and self-creation. Nevertheless, it wishes to have control of all it surveys, even as this diminishes before its own eyes

According to an interview with Bloomberg in mid-August, Ncube said he hopes to establish a nine-member monetary policy committee that will reduce interest rates from 50%.

Within 12 to 18 months, Zimbabwe plans to sell domestic bonds with a duration of as long as 30 years to fund infrastructure investment. In time, it will approach international markets, he said. How exactly any of this is to be done is yet to be explained.

Hanging over all this is the size of the debt that Zimbabwe needs to repay before investors will consider the country a viable risk for new loan liquidity. Estimates for this figure range from US$9 billion to as much as $US30 billion.

Under a debt-settlement plan, which Ncube maintains he is discussing with creditors, Zimbabwe would complete an International Monetary Fund (IMF) staff-monitored programme in January 2020. He told Bloomberg that Zimbabwe would then borrow the $1.9 billion it owes the World Bank and the African Development Bank (AfDB) from the G7 group of industrialised nations. This would allow it to win $1 billion in debt relief from the World Bank and AfDB, which it would pay back to the G7.

But this is an astonishing strategy. It is based on the ability, and credibility, to borrow money to repay money. And there is absolutely no indication that the G7 would loan significant sums to Zimbabwe until both economic and, above all, political reforms are instituted.

Whether Zimbabwe could complete the IMF staff-monitored programme by January is a huge question in itself. The IMF conditions are not easy ones.

Having got this far, Ncube has no choice but to hope that his policies will work. He inherited a mess of gigantic proportions. It was as if the ZANU-PF ruling party, the government, and the oligarchic ruling class thought the free lunch could go on forever. Someone would always loan it more money.

Ncube realised that this could not any longer be the case. But his solution seems to be simply a new way to borrow more money. The first terrible truth is that it is not Zimbabwean money that will save Zimbabwe. The second terrible truth is that Zimbabwe’s economy may not, for some time, be saved.

By Stephen Chan for The Conversation

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