The ‘Military Assisted Transition’ took place in November 2017 and was welcomed by a massive street party that went on for days. A new Government was sworn in and after a short interlude, the 2018 elections took place. The newly elected President took the unprecedented step of appointing 6 non-politicians with a track record, to the Cabinet. This included the most qualified Minister of Finance since Bernard Chidzero. He laid out a Transitional Stabilisation Program and in the next two years we devalued our currency and sorted out our fiscal affairs.
While the Minister was doing this, the President was pushing a business agenda which meant reforms and streamlining government decision making. He launched a program of political reform that was meant to restore confidence in Government, reduce corruption and spur growth. In 2021, the economy responded with an explosion of new growth. Exports grew rapidly, the domestic economy expanded and for the first time in many years, we started to create thousands of new jobs and to fix our broken infrastructures.
In June 2020, the President ordered the establishment of an auction to sell foreign exchange to the private sector and in weeks, the PMR collapsed and for the first time in many years we had something that looked like stability and convergence. Not for long.
While our economy was growing strongly, demand for hard currency to fund imports, expanded even more rapidly. The Reserve Bank failed to meet this increase in demand and instead started to accumulate a backlog in cash disbursements. By the end of 2021 we were 4 months in arrears. The PMR (Parallel Market Rate) had begun to accelerate and the decline in inflation was halted and then reversed.
Today the RBZ is again 4 months in arrears with disbursements of funds allotted via the auction. Why, is a mystery to me because there has been adequate funds at the Bank to liquidate auction allocations. The consequences have been catastrophic – the PMR rate is at 500 to 1, inflation at 21 per cent, month on month, and rising rapidly. The buying power of the local currency has vanished and the average Civil Servant now earns a tiny fraction of what they earned a year ago.
While our productive economy in industry, mining and agriculture has started to recover and grow, these macro-economic and monetary conditions, coupled to shortages of power and raw materials, is crippling many sectors and has started to curb growth. This cannot be allowed to continue.
The Government is fully aware of this critical situation and we have seen serious efforts by the State to get things back on an even keel. The Minister of Finance, who knows what is needed, has tried to help but has not been able to get the co-operation of the bureaucracy. The measures announced by the President two weeks ago did nothing to alleviate the problem. The most critical indictor – the PMR, fell back briefly and has now resumed its death march into the future.
The only issue on the table today is how to manage our foreign exchange rate.
This is the most important price in any functioning economy. Track the exchange rate and you will know what is really going on inside a country. We have multiple exchange rates which tells you that we do not have a coherent market for foreign currency. Controls simply do not work in this field, ask any Minister of Finance in any economy – the USA, China, Europe or Somalia. Attempts at control creates artificial demand for hard currency and opportunity for arbitrage – that is the opportunity to make money without producing anything.
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