Eddie Cross: They have done it again!!
By Eddie Cross
I really thought I had seen everything that Africa could throw at me. But now I have seen new heights of mal governance. I thought people would learn from their mistakes, after all, that is how we are supposed to make progress in the world we live in.
In the first 20 years of Independence, we ran an average budget deficit of 9 per cent and defied economic conventions that said that we could not do that or else we would get into trouble.
We were able to defy logic in that era because we had inherited very little debt from our predecessors in 1980 (only $700 million in debt – less than 10 per cent of GDP). In addition we received billions in aid and new international loans at concessional rates with our National debt rising to over $10 billion by 2000.
But after 2000, cut off from the largesse of the international community and unable to borrow abroad to any extent, we reverted to the Stone Age mechanism of the printing press. The Reserve Bank just printed whatever sum was required to bridge the growing gap between what we received from our taxpayers and what we spent. Mr. Mugabe, like King Canute, sat on his deck chair on the beach and simply ordered the tide to “stay out at sea”.
That worked for 6 years, the crisis slowly gathering momentum and Zimbabweans, like the frogs in water that was gradually rising in temperature, sat there doing very little until it was too late. In 2007, faced with the escalation of migration to SA and clear evidence that this could not continue, the President of South Africa decided to intervene.
In February he got Cabinet approval for intervention, in March he met Mr. Mugabe and got him out of his deck chair on the beach. In April and May he persuaded the SADC and the AU leadership to back his initiative and then he took the problem to the G7 leaders at their annual Summit in Scotland. There he got an undertaking that the G7 would support his initiative and fund the stabilisation of the economy while he tried to engineer a free and fair election.
In October he got the Zimbabweans to agree to reform and hold democratic elections in March 2008 and then when that exercise collapsed under the weight of Zanu PF engendered violence and military intervention, he organised the GNU which was eventually sworn in in February 2009.
For a brief 4 years, the MDC enforced economic discipline and managed a dramatic recovery in the State’s fortunes. We ran a budget surplus for 4 years and tentative talks about getting back into the global community began.
But even before the elections in July 2013, confident that they would engineer a clear victory over MDC, Zanu PF resumed its delinquent ways as if they had learned nothing in the GNU. They employed tens of thousands of new State employees, they then raised salaries by 37 per cent pushing the planned budget surplus of $100 million into a $500 million deficit. They announced that they were going to enforce indigenisation and other radical measures and confidence in the State, which had been gradually recovering in the GNU, collapsed.
In the following year, $2,5 billion fled the country, $1 billion was lost in 9 bank failures and the budget deficit grew to $1 billion in 2014 or over 20 per cent of the budget as revenues, which had been recovering strongly under the GNU, began to decline, just as rapidly. In 2015 it was more of the same – the budget deficit widened and by the end of the year the Government had issued $2 billion in new debt as treasury bills and in addition taken on another $2,2 billion in debt in other forms.
Issuing Treasury Bills, which are just a sophisticated form of an IOU in a gambling Casino, is another form of printing money. They have no real value and are totally dependent on the ability of the State to redeem them in real money when they mature. Confidence in the ability of the State to do so is near zero and as soon as they were issued some were traded at a 30 per cent discount. The discount rate today would probably be over 50 per cent.
Then in January they extended this operation by taking money out of the Nostrow accounts of the Reserve Bank and replacing them with a real IOU. This has reached the stage where the payment systems of the commercial Banks is almost paralysed with delays in transfers growing from an average of 3 days in 2015 to 30 to 45 days today. Transfers awaiting funding in real money must now be well over $2,5 billion.
Then they extended this system to export proceeds, commandeering 100 per cent of all gold and diamond sales, 80 per cent of all tobacco proceeds and 50 per cent of all mining receipts. That is another $2,5 billion a year. They included industrial exports at first but backed down after being faced with a barrage of protests and the threat of legal challenges.
The aspect of this latest delinquency that is most concerning is that it is illegal. Despite this the reckless (because that is what it is) printing of monopoly money in the form of Treasury Bills, IOU’s to foreign exchange account holders and now the conversion of mining and tobacco funds into so called “RTGS” money, has continued.
The only difference to 2000/2008 is that it is now moving so fast that no one can react or manage the outcomes. So in January we could withdraw $10 000 of our own money from our bank accounts, then $5000 and then $1000, now you would be lucky to get $300 or even less and one bank closed its doors on Tuesday in Bulawayo as they were unable to pay their depositors their money (POSB).
We are still dollarized, but we cannot get the dollars we own out of the Banks they are lodged with because they are no longer real dollars but a form of monopoly money created by a highly imaginative Reserve Bank. A premium of up to 40 per cent is now obtainable for cash in the informal markets of the country.
State revenues are shrinking at an alarming rate and the Government is desperate. This week’s long Politburo meeting was concerned almost exclusively with what they called “resource mobilisation”. Plans to reintroduce a local currency had been put on hold for fear that that would be a step too far and exacerbate the present crisis in the economy. Despite this the figure in the deck chair said the programme would continue.
But no sign of the State tackling the root cause of all this which is the budget deficit – Mr. Mugabe is back in his deck chair on the beach and blithely ignores the reality of the incoming tide.
Harare, 10th June 2016