Two weeks ago, when the new Zimbabwe ‘deadwood’ cabinet was announced, I suggested that there was a news pattern emerging on the political front. It feels like there are rumours of good news, followed by an announcement that is less good than hoped – and then, finally, there is some kind of ‘even better’ news that comes out to overshadow it. I would almost say that it’s choreographed. Because each time it happens, more of the ‘doubts’ about the new government fade away.
So when we were all disappointed by the new cabinet, I wondered whether the pattern would repeat itself. And I asked:
Perhaps it’ll be a nice fat foreign loan for Christmas, with a side of legislative reform gravy?
- There’s been a new Zimbabwe Budget; and
- Zimbabwe has finalised a new $1.5 billion support package from Afreximbank.
The new Zimbabwe 2018 Budget
Not to overstate it: but the budget has cut the legs out from under the opposition parties – because it reads like an opposition party checklist. I’m not sure what else to say.
Let me give you some highlights.
A full confession that the current economic crisis is the direct result of government over-spending and local money creation
At the heart of the economy’s fundamental economic challenges is an unsustainable Budget deficit, whose financing through issuance of Treasury bills and recourse to the overdraft with the Reserve Bank is untenable.
This is also at the core of factors driving the demand for foreign exchange, as well as creation of excess money supply, which is largely in the form of electronic RTGS and mobile money balances.
These money balances are accessible through RTGS transactions, card swipes, as well as such mobile platforms as Eco-Cash, One-Money and Tele-Cash. Physical cash is a small proportion of the economy’s overall financial sector liquidity.
Money creation, through domestic money market instruments which do not match with available foreign currency, only serves to weaken the value of the same instruments, translating into rapid build-up in inflationary pressures, to the detriment of financial and macro-economic stability.
This has seen growing mis-matches between electronic money balances and the stock of real foreign exchange balances, as reflected by cash holdings and nostro balances of banks.
The mis-match between the supply and demand for foreign exchange, has also led to the emergence of foreign exchange premiums in the market.
Higher demand from imported feedstock required in the domestic manufacture of goods, in line with the promulgation of Statutory Instrument 64 of 2016, is also exerting pressure on foreign exchange requirements.
Hence, while the panic buying of 22-23 September 2017 was largely driven by speculative tendencies, it was also an indication of the diminished confidence and underlying vulnerability that arises from the disparity between electronic money balances, and available foreign exchange.
For a fuller explanation of this, I’d turn your attention to some older blog posts. Specifically, Zimbabwe Hyperinflation 2.0: The US Dollar Version.
Tackling the public sector wage bill
There is going to be compulsory retirement, a reduction in the number of ministries, and a string of retrenchments.
Reducing other government spending
There is a dramatic reduction planned in the availability of government-purchased vehicles for civil servants, strict limits on the size of delegations, a downsizing of the diplomatic core, and a ban on business class travel for all non-executive civil servants.
There are some new amendments to the Public Finance Management Act, as well as lifestyle audits for civil servants.
Promotion of Foreign Investment
The introduction of ‘one-stop shop’ facilities for foreign investors, guarantees on foreign investment, etc.
Restoring International Relations (in the hunt for foreign loans)
Under His Excellency President E.D Mnangagwa’s new dispensation, Zimbabwe sets out to strengthen its re-engagement and cooperation with the international community, central to quickly normalising political relations.
This should also create a basis for re-establishing external relations and potential support for our agenda for development and socio-economic transformation.
Central to enhancing cooperation is the commitment by His Excellency, the President, that Zimbabwe now fully embraces the culture of honouring all its obligations.
His Excellency the President is, therefore, initiating moves to resuscitate the political re-engagement process with the international community, as well as all our bilateral partners.
Changes to Indigenisation Laws
Most indigenisation rules are going to be limited to the diamond and platinum industries, and the ‘reserve sectors’.
There is also a crucial amendment here: the term ‘indigenous Zimbabweans’ is being replaced by the term ‘Zimbabwean citizens’. Which suggests that the Indigenisation Act will no longer be race-based.
I could go on.
But I don’t need to – because this is a set of reforms if ever I saw them.
That Foreign Loan…
The $1.5 billion Afreximbank loan is larger than the outstanding arrears that Zimbabwe has with the IMF, the World Bank and the African Development Bank.
When it arrives, it has all the potential to bail out Zimbabwe’s banking sector. And at the very least, it gives the monetary breathing space for all those reforms to be implemented.
At which point – quite literally – the only place for Zimbabwe to go is up.
So what I’m really saying is:
Merry Christmas, Zimbabwe.
And a truly Happy New Year.
Rolling Alpha posts opinions on finance, economics, and sometimes things that are only loosely related. Follow me on Twitter @RollingAlpha, and on Facebook at www.facebook.com/rollingalpha. Also, check out the RA podcast on iTunes: The Story of Money.