HARARE – Zimbabwe’s swift descent into an economic abyss has left businesses in a state of collapse and individuals at the risk of sequestration.
Most companies are on the brink of closure, driven to the edge by years of underperformance amid an intensifying cash crunch.
The resultant retrenchments and shutdowns have made life even worse for the country’s majority poor who are clogging the informal sector.
Zimbabwe has been stuck in a dire economic rut for some time now, blamed on a number of factors, among them the chaotic land reforms of 2000 that left the country unable to feed itself.
The situation has now hit a critical point with companies failing to meet their obligations.
Most of them are grappling with mounting debts and it doesn’t seem as if things will be improving in the near-term.
On Friday, the Harare City Council released names of schools, churches and real estate agencies owing municipality a combined $7 million in unpaid water and rates.
Moffat Primary School leads the pack of school debtors with $406 056; Celebration Church ($846 564); Dawson Hotel ($463 296) and Dawn Properties ($1,796 million).
Analysts said the list was just a microcosm of a simmering crisis nationwide, which the authorities seem to be ignoring.
On its own, the Harare City Council’s debt schedule stands at over $700 million. In turn, the city fathers also owe millions of dollars to creditors.
The situation on the ground contrasts sharply with the expressions of optimism leading government officials are prone to offer.
On Tuesday, President Robert Mugabe told Parliament that there was “increased optimism for a stronger rebound in the national economy, largely buoyed by the present good performance in agriculture and mining.”
Economist and MDC legislator, Tapiwa Mashakada, said the situation was such that everyone owes someone because of cash flow problems.
He said companies, churches and schools that were failing to pay their rates and water bills were also owed and that has caused a ripple effect on debt.
Mashakada added that inflation was rising and the cost of living was also advancing, leaving people with no option but to get into debt.
“We are gradually getting into meltdown mode. No one from government is talking about ZimAsset, the economy or even how to fix it. All they are seized with is how best to win the elections, while people continue to suffer: Government is not even bothered with how the economy is performing.
“The $300 million bond notes that were said to have been injected into the economy are all hearsay because there is a cloud of secrecy that covers Zimbabwe’s monetary and fiscal policies,” he said.
ZimAsset is the acronym for the Zimbabwe Agenda for Sustainable Socio-Economic Transformation underpinning government’s response to the crisis between 2013 and 2018.
The RBZ has said it will introduce an additional $300 million worth of bond notes once negotiations with the Africa Export-Import Bank to secure an additional loan to back these notes are completed.
The additional bond notes are expected to be released into the economy towards the end of this month.
“We are currently on auto-pilot and if we are not careful by December we will have a complete shutdown of the economy as debt continues to build up,” Mashakada said.
Economics professor, Tony Hawkins, said at the current rate, the economic situation in Zimbabwe will get worse before the year ends.
“We are like a rabbit caught in the headlights of a car and have nowhere to go. Conventional wisdom will tell you that government cannot do anything until elections and even by then, things will have deteriorated at a rapid rate.
“Simply put, our government is paralysed and does not know what to do. The bond note will continue to devalue unless we get a local currency but that is not going to happen anytime soon,” Hawkins said.
The World Bank and International Monetary Fund are concerned about the bond notes losing their value against the United States dollar, thereby fuelling inflation.
Both institutions are forecasting inflation to average close to three percent for 2017, then peaking above nine percent next year before subsiding thereafter.
Headline inflation remained unchanged last month.
NKC analyst, Chantelle Matthee, said this provides at least some scope to increase the amount of bond notes currently in circulation.
“That said, it is important that any additional bond notes be backed by equivalent amounts of US dollars to help defend their value,” Matthee said.
“Also, we believe it would be prudent for the RBZ to follow a strategy characterised by a gradual introduction of additional bond notes. This would allow for better control over the money supply while also giving the apex bank the opportunity to monitor the market’s reaction and the value of the bond notes.”
Economist, Moses Chundu, told the Daily News on Sunday that the idea of making payment plans with local authorities will not work as people were anticipating another debt write-off and would rather wait until next year to pay for anything.
“The poor payments at local authorities are as a result of that bad 2013 policy of debt write-offs. We tried to warn government against it but they did not listen.
“That write-off altered residents’ behaviours because it rewarded defaulters and punished those who were paying.
“We have a populist government, which may write-off debts to meet people’s expectations. From last year, council’s debt bill has been increasing because of cash-flow problems and another write-off will only make it worse. The drum and chaos in government is not helping as it is not putting anything in order and neither is it giving people confidence about the economy,” he said.
Chundu said government has been suppressing the problem and Reserve Bank of Zimbabwe governor John Mangudya has been trying to cover it up but it is not working.
“There is a limit to where paper money can sustain the economy. The economic outlook is not encouraging and slowly we are drawing towards another 2008 scenario,” Chundu said. – Daily News