Since April this year (5 months) the proportion of formal sector sales in USD went from 85 per cent to 20 per cent with 80 per cent of all sales in ZIG. When those same companies went to their banks to secure the foreign currency they needed to restock, they could not secure even a tiny proportion of what they needed. By September 2024, the great majority of companies were complaining about their large balances of ZIG and shrinking stocks of everything. Smuggling across or through our borders was rampant, formal sector stores had to raise their prices in USD to compensate for the losses in ZIG. Inflation re-emerged in both ZIG and USD terms.
Inevitably the crisis reached the point where it could no longer be ignored. The President cancelled his trip to the United Nations General Assembly and called a series of meetings to try and find a way forward. Eventually the Reserve Bank issued a statement enforcing the following: –
Devaluing the ZIG to 25 to 1 (84 per cent). Increasing interest rates from 25 to 35 per cent, Increasing the balances that had to be held by the RBZ in terms of Bank deposits. Further restricting access to hard currency by limiting the cash we can take out of the country when travelling.
Now I do not know how this package came to be accepted or who was involved, but not a single one of those decisions will have any impact on the present crisis and in fact they make the present situation much worse. Every bank balance in ZIG has been devalued, the hundreds of millions of Treasury Bonds or Bills in ZIG being held by exporters and other forms of State debt, have been wiped out with dramatic impact on balance sheets and profitability. Workers and pensioners who were paid in the past 10 days (virtually all of them) and were paid in ZIG, have had their salaries devalued by 84 per cent. Prices in ZIG went up in 24 hours.
I find this extraordinary as no other African State has such problems, even Somalia, and every one of our neighbours, who at one time were having similar experiences, have adopted policies which now deliver stable prices and exchange rates. What is wrong with us? It’s not our economy, that is doing well, it’s our Government and its leadership.
If you are going to complain about something you must offer a solution. I have been stating for many months that the only way to manage fiscal and monetary markets is to adopt the following measures: –
Fiscal: There is ample evidence that the Government is not controlling expenditure within its capacity to raise taxes. We as a country ran a fiscal deficit of 9 per cent on average for the first 20 years of Independence, this was not sustainable and when it finally caught up with us our currency crashed and with it our economy. Fiscal discipline is essential going forward. The practice of incurring liabilities and then settling these with treasury instruments, must stop.
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