Zimbabwe currency crisis: Time to face the truth

An over-valued and unstable local currency, and the fraudulent "shortage of foreign currency it creates, repels foreign direct investment, to the detriment of much needed job creation that arise thereof.

There is, of course, no such thing as "a shortage of foreign currency".

In open and disciplined markets, all that such a claim reflects is an over-valued local currency, whose managers resist the simple law of supply and demand, at that point in time.

As  Zimbabwe's Treasury and its reserve-less Reserve Bank of Zimbabwe implement the new 2024 Q1  monetary policy statement (MPS), they both  must be mindful of this truism and their respective mandates.

Time is long over-due to accept reality, face the truth, and embrace good governance.

The foreign currency denominated debt Zimbabwe defaulted on two decade or so ago, should focus minds.

And so should the unacceptable levels of poverty, income and food insecurity, all prevailing in the country.

Equally important to bear in mind is the high levels of joblessness and under-employment in the country, the root cause of the poverty.

An over-valued and unstable local currency, and the fraudulent "shortage of foreign currency it creates, repels foreign direct investment, to the detriment of much needed job creation that arise thereof.

Among economists and accountants, why an officially over- valued local currency has persisted in Zimbabwe over a long time is an open secret: it benefits an unscrupulous elite that accesses hard currency at the official rate, and, or has access to huge medium term loans in local currency.

The loans are quickly converted into assets or hard currency at the black market rate to save value, but the loans, with “sub-prime” interest rates, are serviced over time as the local currency depreciates to the detriment of the lender.

Winds of Change

The Q1 MPS may turn out to be a significant moment in Zimbabwe's now chequered history.

The so called winds of change are blowing across the country.

The change of guard at the reserve less Reserve Bank of Zimbabwe - the RRBZ, provides an opportunity of parting ways with the era of wanting to re-enact the Rhodesian economy, complete with what was termed the "Direct Local Market Allocation" - DLMA scheme.

In recent history, this played out as RBZ's foreign currency auction.

A good idea, this was however undermined by what seems to have been futile attempts to suppress the value of the US dollar.

More crudely this may be likened to an attempt at creating/"printing" the greenback.

Unsurprisingly, it did not work.

It only provided a massive opportunity for arbitrage that enriched a few, but severely hemorrhaged the rest of the economy, punching huge holes on virtually every balance sheet, including the frayed one of the central bank. You can see right through it the folly of it all.

With hindsight this was indeed folly, or looting, on a massive scale of the most cruel variety far removed from any restoration of legacy, the once mooted reason for the November 2017 coup.

The result is the current local currency was consigned to the dustbin of history in the Q1 MPS.

President's second and final term

Without the distraction and caution running for another term brings to an incumbent president, the head of state, in his second and final term, can apply all his mind and effort to do what is good for the nation and his legacy, rather than being held to ransom by the reptilian illuminati that surrounds him.

He should move to enact the necessary reforms across the political, economic, social and legal landscapes, without fear or favour.

His objective should unashamedly be to turn around the Zimbabwe Democracy and Economic Recovery Act, a US law, to Zimbabwe's advantage.

It is not an impossible feat. The appointment of his US-educated son as a deputy minister at Treasury may turn out to be a master stroke as the youngster has the unique advantage of being able to tell his father the truth, without fear of recrimination, or being undermined by opportunistic bootlickers of which there is no shortage in Zimbabwe.

All going well, this relationship should see the end of the beleaguered local currency, and the beginning of house-cleaning and genuine balance sheet repairs at the central bank under a new broom, among other reforms.

Reviewing 10 key functions of the sovereign state

As part of its deliberations on the 2024 national budget bll, Cabinet and its corps of deputy ministers and mandarins, would have reviewed its performance on its 10 key functions.

According to the United Nations Development Programme (UNDP) Working Paper # 12, titled State Effectiveness, Economic Recovery and Poverty Reduction: Some Evidence from the Global Experience for Zimbabwe, the last paper in a UNDP-led initiative that started in 2007, and meant to address Comprehensive Economic Recovery in Zimbabwe, the ten key functions for the contemporary sovereign state are as follows:

  1. (Upholding) the rule of law.
  2. A monopoly on the means of violence.
  3. Administrative control.
  4. Sound management of public finances.
  5. Investments in human capital.
  6. Creation of citizenship rights through social policy
  7. Provision of infrastructure services.
  8. Formation of a market.
  9. (Optimal) management of public assets
  10. Effective public borrowing.

Gap analysis and performance score card

Carry out a gap analysis on each of the ten key functions to see how the government of Zimbabwe (GoZ) has fared, against both domestic and international expectations,  in the performance of its duties, and the result is a dismal score card, - not much different though to that of many a developing country.

International finance institutions (IFI) want everyone to believe the major, if not only reason for the poor showing is poor governance, with (rampant) corruption, government ineffectiveness, and poor legal frameworks contributing the most to the debilitating effects of poor governance.

Rarely mentioned, but perhaps of equal, if not more importance are two other reasons. One is inadequate funding by the IFIs, especially for African countries.

The second is lack of autonomy in policy making and ideological mapping, compounded by financial illiteracy and lack of innovation etc.

These two reasons put function # 10, Effective public borrowing on the spotlight.

In its comprehensive report, titled "Fifty Year of Failure: The International Monetary Fund (IMF), Debt and Austerity in Africa", - a must read document for every public policy maker and law maker in Africa -  issued in October 2023, Action-Aid, a global Non-governmental Organization, (NGO) puts the blame of Africa, including Zimbabwe's debt crisis squarely on the IMF's policy tool of austerity shoved down the throats of borrowers, alongside conditional, but self contradictory policy and ideological prescriptions, even when evidence, including IMF's own data, points otherwise.

That this has gone on for close to half a century, and is still going on, is inexcusable. Africa must hunt for new perspectives, or forever be labelled "Beggars of Unsound Mind"

Finding ourselves

Sovereign intellectual and industrial capability is no longer an option for Africa but the way forward, just like embracing  evidence based public sector governance /management, and not the copy  and paste and parroting variety that has crippled Africa over the last fifty years of failure.

In east and southern Africa, the pooling of sovereignty into a federal state will result in the formation of a much bigger market, - function # 8 -  an essential ingredient in attracting FDI and raising more resources domestically. The economies of scale a federation brings are priceless.


*Obert  Nyandoro is a pharmacist

These weekly articles published are coordinated by Lovemore Kadenge, an independent consultant, managing consultant of Zawale (Private) Limited, past president of of the Zimbabwe Economics Society and past president of the Chartered Governance and Accountancy Institute in Zimbabwe. Email- [email protected] or mobile no. +263 772 382 852

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