Why the IMF is wrong about Zimbabwe’s 5% economic decline

Where Are We Going?

I drove up the window of the Toll Gate and the man on duty asked me ‘Eddie, where are we going?’ He was not asking what my destination was but where did I think the country was going. Last night my daughter attended a parents meeting at the school her son attends and came home saying what a mess everything was in – they could not agree on changes to the school fees.

Certainly I can seldom recall a period when people were so angry about the state of things here. The thing that is upsetting people most is the continued instability in money markets – this past week the informal sector rate has crept up and now shadows 5:1. What officials and Ministers do not seem to appreciate is the massive impact of the seemingly small movements in the exchange rate. 3:1 as compared to 4,5:1 represents a 50 per cent increase in prices.

I have worked in the business sector for 60 years but never appreciated to this extent the issue of what economists call ‘price discovery’. People simply do not know what to charge for goods and services. I walked into a fast food place yesterday and the price on the Board was $2,50 for the item I wanted. When I paid for it I was charged $9.00 – implied exchange rate of 3,6:1. The price on the Board was expressed in US dollars. At 5:1 the same item would be $12.50 – 38 per cent higher.

For the second time in a decade our savings have been wiped out, values turned upside down and markets thrown into chaos with a dramatic decline in net disposable income. If you are on a fixed salary or pension (like me) then you are now earning a quarter of what you earned in real terms just a year ago. But prices do not stay constant – fuel and transport charges are up 3 times, in the retail stores prices are all over the place but on average perhaps 4 to 5 times what they were a year ago. Many people must now be on the edge of destitution.

In Sudan the government was overthrown by a Military Coup after bread prices rose in January. Here people just knuckle down and try to survive – but the anger at these conditions simmers just below the surface and trouble could break out at any time. That is why I have been arguing for the Government to take this issue seriously and convene the Tripartite Negotiating Forum (TNF) attended by the Unions, Employers and the State as soon as possible. I spoke to the President himself last week about this and he said he had asked the Minister of Labour to convene the TNF – but still no action. We play with fire by not attending to this.

But there is more to this than just understanding that we must try to restore peoples buying power, we need to understand that the Government has completely changed the basis of our economy in the past few months.

First priority was to balance the budget – this is done and in the last quarter of 2018 revenues rose 43 per cent and a substantial budget surplus was recorded. We have now been able to retire some domestic debt, raise civil servant’s salaries by 18 to 30 per cent and pay December bonuses without borrowing – quite an achievement which has now been recognised by the IMF who have accepted us back onto a Staff Monitored Program – astonishing short at 9 months meaning that they think we are on track.

But up to June 2018 we had been living beyond our means for the previous 4 years – the result an overvalued local currency and a mountain of local debt. In addition – while we grew our economy on the back of growing domestic consumption (something the Chinese are now trying to do) we taxed our formal sector at over 30 per cent of GDP and in addition took billions of dollars from our exporters in a scam which diverted this wealth to subsidies on fuel, food and other essentials as well as a life of luxury for the connected and the corrupt.

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