Zimbabwe cash crisis shows absence of fresh thinking

The implication is that in a crowded-out monetary sector, the solution is to convert one set of illiquid assets – transferable deposits in the RTGS system – into another, TBs.

That financial inclusion is mentioned at all in an economy where two-thirds of the population live in poverty yet expected to use mobile cash or debit cards to buy a 90c loaf of bread is worthy of Marie Antoinette’s advice to the French peasantry: “Let them eat cake”.

On the grounds of sensitivity alone, the section on financial inclusion would have been better excluded.

One might have expected at least some discussion of the threat to the financial system posed by domestic debt denominated in US dollars.

If this is added to the foreign debt, including the proposed $1.5 billion from the ubiquitous Afreximbank and the $1.9 billion increase in government’s local borrowings this year, total US dollar debt will approximate 100% of GDP by end-2018.

Domestic debt is just the tip of the iceberg. If bank deposits in the RBZ and their holdings of TBs are adjusted for the 40% depreciation of the local currency, the haircut banks will have to take exceeds their total capital.

No matter. The MPS is winning applause from the commentariat, locked in the conviction that the consequences of explosive monetary growth, unmanageable fiscal deficits and US dollar debt, soaring poverty and unemployment, can somehow miraculously be cured by gain-without-pain re-engagement with the international community.

In this narrative, IMF warnings that, on average, it takes 10 years for a fragile economy to “shake off fragility” and estimates that it will take at least until 2030 for per capita incomes to return to their 1998 levels are brushed aside.

But later this year or in 2019, Zimbabweans will have to come to terms with the consequences of decades of ZANU-PF mismanagement, one of which will be painful structural adjustment that will make the failed ESAP programme of 1991 look like a Sunday School picnic.

By Tony Hawkins for The Source

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