Dollar shortage highlights Zimbabwe’s deepening economic woes

By: 
Tony Hawkins
Source: 
Financial Times

THE queue outside the Harare branch of CABS bank stretches to at least 60 people, as Zimbabweans patiently wait to withdraw cash amid a deepening US dollar shortage in the southern African nation.

If they are lucky, the ATM will have notes — many do not and availability can vary depending on the time of day.

In nearby shops, retailers warn that the scarcity of dollars — the dominant currency in the import-dependent nation — will soon start to show on supermarket shelves. Authorities this week imposed restrictions on the import of a range of goods, from bottled water to fertilisers and canned beans, while local businesses complain of not being able to pay suppliers.

The currency crisis is indicative of the dire state of the economy under the regime of Robert Mugabe, Zimbabwe’s veteran president, which is desperate to reopen credit lines with the International Monetary Fund and the World Bank.

The government had promised to address the dollar shortage by printing so-called “bond notes” — effectively currency notes — that are supposed to have the same value as the greenback. The announcement in May in effect meant Harare was reintroducing its own currency seven years after it ditched the Zimbabwe dollar at a time when the country was gripped by record levels of hyperinflation.

But in the weeks since, a series of confusing and contradictory statements by officials, coupled with concerns that the government’s intention is to use backdoor methods to reintroduce the Zimbabwe dollar, has merely exacerbated economic uncertainty. “It is a spectacular own goal,” says one banker who did not want to be named.

Zimbabwe’s central bank originally said it would introduce up to $200m of bond notes backed by a loan from the African Export-Import Bank starting from next month. But their introduction has already been delayed twice, and the central bank now says that only $2m of the notes will be in circulation by the end of the year. “We are in classic headless chicken territory,” another banker says.

Zimbabwe has used a multicurrency system since 2009 after dumping the Zimbabwe dollar in the wake of a period of economic chaos during which the central bank issued Z$100,000bn notes that lost value almost as soon as they were printed.

The US dollar has dominated ever since, accounting for more than 90 per cent of transactions. The South African rand accounts for about 5 per cent of transactions.

But the depressed state of the economy, which has been hit by political uncertainty, including over who will succeed 92-year-old Mr Mugabe, crippling infrastructure bottlenecks and drought, has triggered the US dollar shortage.

A vehicle importer says he has been unable to pay his suppliers for five weeks and will have to downsize his operations if payment conditions are not eased. Quest Motors, a local vehicle assembler, says it has sold just 40 units this year and is operating at below 1 per cent of capacity.

Few believe the introduction of the bond notes will provide the solution — the notes are derided on social media as “Zimbabwe dollars that went to private school”.

But Zimbabweans, badly burnt by the hyperinflation of 2005-08, fear that in an effort to ensure it can pay its bills, the government will “de-dollarise” and bring back a local currency. Another option is to adopt another currency, such as the rand. “Unless things change soon, forced de-dollarisation by September is a distinct possibility,” says a bank economist.

The government last week pushed back public servants’ June salary payments by three weeks, as well as pensioners’ benefits. With government revenues 12 per cent below budget expectations in the first three months of the year, the government borrowed $245m — about 1.7 per cent of gross domestic product — in treasury bills. It needs to raise at least another $600m during 2016.

In a bid to manage the US dollar scarcity, the authorities are promoting the use of debit and credit cards, while encouraging households and companies to use other currencies, notably the rand.

Through currency and import controls, it is also prioritising the allocation of dollars to four sectors. But the priorities have already been reshuffled in response to political pressure with foreign payments for education elevated to “priority one”. That followed demands by heavyweights in the ruling Zanu-PF party whose children are educated abroad. Bankers say it is a worrying indication that the priorities will be revised randomly even as companies face closures.

And while nine currencies are legal tender under the multicurrency system, in practical terms Zimbabweans are dependent on US dollars.

“The government wants me to buy food with Chinese and Japanese cash,” says an attendant at a filling station battling unsuccessfully to get a point-of-sale machine to accept a Visa card. Both currencies are legal tender in Zimbabwe. “Where do I get that money?”

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