The Zimbabwean economy continues to be in the limelight owing to its relentless twists and turns. As much as we see memes and joking impressions on social media about the Zimbabwean situation, it doesn’t negate the untold suffering of many. Zimbabweans are known for being storm absorbers but the elastic limit of most of them has been reached. The finance minister has been championing the TSP (Transitional Stabilization Programme) which instead has brought immense economic instability. With the recent fuel price hikes, it suffices to say the nation’s economy is now locked in cycles of perpetual decline.
A Brief Look At The TSP
The TSP is 3-tier i.e. it seeks to check government expenditure, broaden the tax base and foster engagement with global financial institutions. The unfortunate thing is that government spending is still undisciplined and that erodes the gains of the broadened tax base. Mind you some of the initiatives put in place to broaden the tax base are milking the pockets of the ordinary citizens. Engagement with international financial institutions is clouded by the unstable political state of the nation. Plus the government still prioritizes borrowing as a panacea to the country’s economic problems. Imagine you owe and you’re still bent on borrowing more – it will not work. Right now the government’s external debt is over USD8 billion with domestic debt estimated around ZWL$10 billion.
The Recent Fuel Price Hikes
The incidence of incessant fuel price hikes has become commonplace in Zimbabwe. Recently the central bank removed subsidies on fuel procurement. This saw diesel going up to RTGS$4.89 whilst petrol went up to RTGS$4.97. This was premised on the central bank’s efforts to liberalize the interbank market with respect to the sourcing of fuel. While the thrust for liberalization is noble it doesn’t operate in isolation. Other factors, such as inflation, among many others, must be optimal for liberalization to bear desirable fruits. As could have been expected, black market rates surged whilst the prices of goods and services followed suit.
A Brief Look At The Liberalization Of Interbank Market Regarding Fuel Procurement
What this essentially means is that fuel companies now have to scramble for forex on the interbank market. It seems to be a tall order given that the availability of the forex on the interbank market is still at best theoretical. The finance minister has alluded to the availability of a USD500 million Afreximbank facility. However, this is a song we have heard from time to time since 2017 and really doesn’t give us the confidence that the money is actually there. What the central bank hopes to achieve by this liberalization is the alignment of the interbank market and the black market. The ultimate goal is to devalue the black market – which time and time again has turned out to be a futile undertaking. The policy is, for the most part, theoretical and is far removed from the real world. The other aspect of concern is in the keyword, ‘liberal’ – is it going to be liberal? This endeavour won’t work if there is an element of control exerted by the central bank and government – of which that’s always the case.
So what do all these aspects point to? More economic upheavals!
The Public Service – A Ticking Time Bomb
So it’s an established fact that the civil service wage bill is ridiculously high in Zimbabwe. The government is failing to increase civil servant salaries. There is one thing that might happen soon especially due to poor living standards for most public servants. There have been calls for salaries to be issued out in forex for some time now. Due to the further erosion of incomes, the security sector might mount further pressure to be paid in forex. The government might accede to the pressure because you can’t afford to have a volatile security sector. The possibility is that they might be paid in forex (which is highly doubtful due to its unsustainability). The most probable thing to happen is that their RTGS$ incomes might be increased and that’ll ripple through the rest of the public service. This will force the government to enact more stringent measures to generate revenue to service that wage bill. More problems.
Standards Of Living
Standards of living are projected to continue plummeting given that porous monetary policies are still in effect. Already the majority of the country is now subjected to long arduous hours of load-shedding. Most of the people who eke out a living in the informal sector are being seriously affected by these power outages. Basic goods and services are now so expensive and yet salaries have remained the same through all this turbulence. Despite the fuel price hikes, fuel is still scarce as can be seen from the long winding queues at fuel stations. As much as USD120 million dollars is needed to satisfy monthly fuel demand. After all is said and done, the hardest hit individual is the consumer because most of the financial burden from production all throughout the supply chain is offloaded on them.
The truth is the economy is locked in a loop; things will continue to deteriorate if the fundamental aspects aren’t addressed. The TSP is majoring on addressing symptoms of the actual problem. This has been said all too often but it still is one of the fundamentals that must be addressed – the bond must be eliminated altogether. In case you haven’t noticed, this whole issue of having interbank market rates, central bank forex allocations and so on – that’s not normal. Those are tell-tale signs of serious fundamental problems in an economy. An economy can’t thrive if the fundamental principles of economics are ignored. So it’s sad to say that more economic turmoil is still on its way.