What remains outstanding in this programme of reform is the demonetarisation of the Bond note and the adoption and implementation of a new currency, controlled and administered by a professional, independent Monetary Policy Committee. I expect that process to be completed by mid-2019.
The effect of these reforms has been to bring Zimbabwean macroeconomic fundamentals back into sound territory, to devalue existing stocks of RTGS and Bond currencies to a more manageable level and to float the local currency against the US Dollar and the SA Rand.
Another consequence has been a rapid escalation of inflation which is now at hyperinflation levels and will remain at this level until the monetary situation stabilises. My own view is that once all foreign inflows are valued at a market rate, the rate of exchange to the US Dollar will settle down at 2 or 3:1 against the US Dollar.
As I have said on several occasions recently, this will make the new currency for local transactions the strongest currency in the region. Once stability is reached in the exchange rate and people are able to buy and sell foreign exchange freely on the open market, I would expect inflation levels to decline sharply and resume a more normal pattern of 3 to 4% per annum.
What is unavoidable is another massive reduction in the real value of accumulated financial assets. Not as extreme as 2008 but nevertheless reducing the value of money balances by as much as two thirds.
Zimbabweans will have to rebuild their liquid assets using the more stable currency as they did in 2009/13.
This leaves the President with the task of dealing with the conflict in the cockpit over the way forward and the prospect of instability because of rising prices and reduced living standards. The last minute decision to increase fuel prices to open market levels to curb consumption, was the straw that broke the camel’s back.
The President left Zimbabwe for Russia and 2-days later mayhem broke out on the streets in the cities and towns of Zimbabwe. The Acting President reacted by attending the meeting of Security Heads on Monday morning and demanding the imposition of a State of Emergency with Marshal Law.
What his intentions were are not clear as the situation hardly justified such extreme measures. The Security Chiefs refused to comply but the army moved immediately to restore order and control. The closure of the internet completed the task and Zimbabwe literally ground to a halt for 3-days.
Hundreds were arrested and there have been reports of widespread looting, burning vehicles and buildings and human rights abuse and even torture. Almost as if the Administration automatically reverted to the practices that had prevailed during the worst periods of the Mugabe regime.
The consequences have been catastrophic for the new administration from a public relations and international point of view. This is not being assisted in any way by the manner in which the authorities responded to the crises.
Mnangagwa was forced to cancel his Davos visit and flew home to take charge. Upon his return conditions rapidly settled down and life in Zimbabwe returned to normal. But the damage was done.
Has the conflict in the cockpit been addressed, I think so? Will it enable more rapid reform; I hope so?
By Eddie Cross
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