![Between a ZW$ Rock and a US$ Hard Place: Analysing Hon. Prof. Mthuli Ncube's Latest Currency Stabilisation Measures [PART 1]](https://payhip.com/cdn-cgi/image/format=auto,width=1500/https://pe56d.s3.amazonaws.com/o_1h2cfaovbnts1n0k1acdje8igrc.jpg)
Preamble
On the 29th of May 2023, Professor Mthuli Ncube's announced his latest currency stabilisation measures. Here I attempt to analyse what they intend to do, their likely efficacy and further recommendations, which I placed at the end. I have chosen to present it in the form of a report, as I would were I to be asked by Zimbabwe's Treasury Department to present my assessment.
I approach the presentation by briefly looking at Zimbabwe's macroeconomic history from the year 2000, in a bid to explain why Zimbabwe finds itself needing these corrective measures in the first place. Looming large as a background to these announced measures is, undoubtedly, the the two schools of thought, each so sure its way is the right way for Zimbabwe. To dollarise or not to dollarise, that is the proverbial question.
This brings to mind the second inaugural address by Abraham Lincoln, the 16th president of the United States of America (USA), delivered on March 4, 1865. He was speaking about the causes and consequences of the American Civil War, which pitted the Union against the Confederacy. I quote thus;
"In great contests, each party claims to act in accordance with the will of God. Both may be wrong, and definitely one is surely wrong. Because God can not be for, and against the same thing at the same time. Both read the same book and pray to the same God, and each asks for his help against the other... but let’s not judge, so we won’t be judged. The prayers of both could not be answered. Neither one got what they wanted completely. The Almighty has His own plans."
In essence, Zimbabwe's Finance Minister neither completely dollarised, nor fully embraced the local currency, choosing to appease needs of both camps, which will please neither.
Again, this is reminiscent of a famous figure in history, Louis the 16th, the last monarch of France. By trying to please both the nobility and the commoners, he displeased both of them, as they had different and often conflicting needs, which could not be solved by a median route. The nobility wanted to preserve their privileges and influence, while the commoners wanted more representation and equality.
The honourable minister, equally could have completely dollarised the economy of Zimbabwe, or fully backed the Zimbabwean dollar (ZWL) to the hilt and removed any and all US dollar transactions. Because, like in 1789 France, Zimbabwe's monetary predicaments "can not be solved by a median route."
There are also undertones of non-synchronous working relations between the monetary and the fiscal authorities in the country, assessing some of the accusatory language used by the minister. In one instance in the policy statement there is talk of "inflationary financing of liabilities" (by the Reserve Bank of Zimbabwe - RBZ) which ascribes blames, technically.
The very announcement itself, being of monetary matters, but not being done by the Central Bank Governor, under whose purview it falls, and being announced by the Finance Minister, whose office predominantly occupies itself with fiscal matters, speaks volumes. But we will delve into that and expound at length in the report below.
With that as a preamble, we go into the report proper.
Assessment Report on the Statement on Policy Measures to Stabilise The Economy - 29 May 2023
Executive Summary
This report aims to analyse the new policy measures announced by Professor Mthuli Ncube, the Minister of Finance and Economic Development, on 29 May 2023, to stabilise the Zimbabwean dollar (ZWL) and prevent its money externalisation.
- The report provides a historical overview of Zimbabwe's economic and political crisis since 2000, highlighting the main challenges and shocks that have affected the country's macroeconomic performance and social conditions.
- The report then reviews the macroeconomic fundamentals of Zimbabwe on, and on days prior to, the day of the announcement, using various indicators, methods and sources to assess the gaps and challenges in achieving the targets set by Zimbabwe's National Development Strategy 1 (NDS1).
- The report assesses the impact of corruption and sanctions on Zimbabwe’s economy and society. It shows that corruption undermines economic growth, efficiency, and competitiveness by diverting public resources, distorting market incentives, increasing transaction costs, eroding trust, and discouraging investment. It also shows that sanctions do a bigger damage, by numbers, as they constrain economic development, integration, and cooperation by limiting access to finance, trade, investment, technology, aid, etc. from foreign sources..
- The report then analyses the rationale and objectives of each of the new policy measures announced by Professor Mthuli Ncube, using relevant economic theories, models and empirical evidence to explain their expected effects and implications.
- The report later evaluates the potential benefits and costs of each of the new policy measures, using relevant economic theories, models and empirical evidence to weigh their advantages and disadvantages.
- Finally, the report provides recommendations on where the authorities can strengthen to improve or complement the new policy measures, or offer constructive criticism, with alternatives offered, again, using economic theories, models and empirical evidence to suggest possible alternatives or additions.
The main findings and conclusions of the report are thus:
- Zimbabwe is facing a severe economic and political crisis that has worsened since 2000 due to various internal and external factors, such as political instability, land reform, sanctions, droughts, hyperinflation, dollarisation, de-dollarisation, corruption, sanctions, etc.
- Zimbabwe's macroeconomic performance on the day of the announcement was mixed, with some indicators showing better than expected results (such as GDP growth and unemployment) and others showing worse than expected results (such as inflation, interest rate, balance of trade, current account and government debt).
- Zimbabwe's economy and society have been severely affected by the Reserve Bank of Zimbabwe money expansion activities and quiescent bank monitoring as banks continued to expand money unsustainably through loan books. The government has since implemented various measures to mitigate the impact of these and the impact will be evaluated over time.
- The new policy measures announced by Professor Mthuli Ncube aim to stabilise the ZWL and prevent its externalisation by reducing money supply growth, servicing foreign debt obligations, reducing intermediation costs, raising fiscal revenues, discouraging foreign currency transactions or inversely promoting domestic currency usage usage, enhancing compliance with international standards, reducing fuel subsidies, encouraging banking of foreign currency, and rationing scarce foreign exchange.
- The new policy measures have potential benefits and costs that depend on various economic theories, models and empirical evidence. Some of the benefits include lower inflation expectations, higher confidence and investment, lower default risk and improved creditworthiness, higher public spending and growth, lower parallel market activities and exchange rate distortion, improved market access and reputation, lower environmental pollution and carbon emissions, higher financial inclusion and intermediation, higher demand for domestic currency and lower exchange rate risk.
Some of the costs include lower liquidity and growth, higher taxes or borrowing, lower export competitiveness and earnings, higher tax burden and administrative costs, lower financial inclusion and access to formal financial services and products, lower import capacity and growth, lower profitability and resilience of banks, lower flexibility to adjust to external shocks and maintain competitiveness, excess demand for foreign exchange and foreign exchange shortages.
- The new policy measures can be improved or complemented by various alternatives or additions that depend on various economic theories, models and empirical evidence. Some of the recommendations include monetary policy coordination, debt restructuring and relief initiatives, prudential regulation and supervision, exempting essential imports from tax, expanding digital payment platforms and services, providing incentives for small-scale miners to formalize their operations, providing targeted subsidies or cash transfers for low-income households, increasing the supply of foreign currency through export promotion, diaspora remittances, Foreign Direct Investment (FDI) attraction etc., increasing the confidence in the domestic currency through inflation targeting, exchange rate stabilization, fiscal consolidation etc., adjusting the auction amount according to market conditions.
- The main conclusion of the report is that Zimbabwe is between a ZWL rock and a USD hard place because the economy seems to be lurching from one situation to another and constantly plugging leak holes and the solutions are going to be painful, in the short term, whichever direction it takes, which explains why the authorities are wont to take the median path, as they have done.
Quite significantly, these Policy Measures to Stabilise The Economy also need to be supported by a conducive political environment and public consensus, because that will restore stability and confidence in the economy, as proven time without number, market forces always trump forced legislations.
Introduction
- The report is structured as follows:
- Section 1 provides a historical overview of Zimbabwe's economic and political crisis since 2000, highlighting the main challenges and shocks that have affected the country's macroeconomic performance and social conditions leading to a situation the country finds itself in 2023.
- Section 2 reviews the macroeconomic fundamentals of Zimbabwe on the day of the announcement, using various indicators, methods and sources to assess the gaps and challenges in achieving the targets set by the National Development Strategy 1 (NDS1).
- Section 3examines how Zimbabwe’s economy and society are affected by sanctions and corruption. It argues that sanctions and corruption weakens economic performance, productivity, access to credit and competitiveness within the region and internationally, skewing market incentives, raising transaction costs, damaging trust, deterring investment. The chapter concludes with the successes that have been registered recently in regaining a foothold on the international capital markets, despite the sanctions.
- Section 4 explains the source of the recent deepening monetary crisis where Zimbabwe capital markets operated almost unchecked to the detriment of the economy, particularly the stock exchange, banks and Mobile Money Transfer Agencies. This resulted in a fluid and dynamic liquidity situation that monetary authorities later found hard to correct and whose effects reverberate to this day.
- Section 5 assesses the Statement on Policy Measures to Stabilise The Economy by Professor Mthuli Ncube. This section evaluates the rationale and objectives of each of the new policy measures in the announcement by using relevant economic theories, models and empirical evidence to explain their expected effects and implications, thus forms the main subject matter of this report.
- Section 6 evaluates the potential benefits and costs of each of the new policy measures, using relevant economic theories, models and empirical evidence to weigh their advantages and disadvantages.
- Section 7 provides recommendations on how to improve or complement the new policy measures, using relevant economic theories, models and empirical evidence to suggest possible alternatives or additions.
- Section 8 concludes with a summary of the main findings and conclusions of the report.
Section 1: Historical overview of Zimbabwe's economic and political crisis since 2000
- Zimbabwe's economic and political crisis can be traced back to the year 2000, when the country held a constitutional referendum that was rejected by the majority of voters. The referendum proposed to amend the constitution to allow President Robert Mugabe to extend his term limit, acquire more executive powers and seize white-owned farms without compensation.
- The most likely sources are, however, the colonial legacy of a skewered economy designed to benefit a few; the "over socialisation" thrust of 1980s to1990s policies trying to rectify this, but also at the expense of investing in capital areas of the economy which remained in the hands of the predominantly white business and the Multi-National Corporations (MNCs) who moved in after 1980 independence; the 1992 over correction by International Monetary Fund (IMF) Economic Structural Adjustment Programme (ESAP); the unbudgeted War Veterans compensation scheme of 1997 and the equally unbudgeted participated in the Democratic Republic of Congo (DRC) war in 1998; all these provided a festering economic environment leading into the 2000 referendum.
- Following the referendum, the government launched a fast-track land reform programme that involved the forcible and often violent redistribution of land from white commercial farmers to black peasants and war veterans. The programme was intended to redress the colonial legacy of land inequality and empower the indigenous population. However, it also resulted in a drastic decline in agricultural output and exports for over a decade as business farming has a steep learning curve. As up to that point agriculture was the main contributor to the country's GDP this robbed the economy tremendously. It is only since 2021 that agriculture's prominence is slowly being restowed.
- Significant to mention that the land reform programme triggered international condemnation which morphed into IMF cancelling debt support and both covert and overt economic sanctions from countries such as the United States, the United Kingdom and the European Union. The sanctions targeted individuals but also entities critical to smooth functions of the economy, like government owned banks who were handicapped to transact offshore, trade restrictions and suspension of aid and loans. The sanctions further isolated Zimbabwe from the international community and reduced its access to foreign exchange and financing.
- The economic and political crisis deepened in the subsequent years, as Zimbabwe faced multiple challenges and shocks, such as:
- A severe drought in 2001-2002 that reduced crop production and food security.
- A contested presidential election in 2002 that was marred by allegations of fraud, intimidation and violence.
- A hyperinflationary episode in 2003-2008 that eroded the value of the local currency, the Zimbabwean dollar (ZWD), and reached a peak of 79.6 billion percent in November 2008.
- A collapse of public services and infrastructure, such as health, education, water, electricity and transport.
- A massive exodus of skilled workers and professionals to neighbouring countries and abroad.
- A cholera outbreak in 2008-2009 that killed over 4,000 people and infected over 100,000 others.
- A disputed parliamentary election in 2008 that led to a political crackdown and a humanitarian crisis.
In response to these crises, Zimbabwe has become synonymous with a series of policy measure announcements and walking back on some later. The recent one announced by the the Minister of Finance Professor Mthuli Ncube on the 29th of May 2023 adds to this list of announcements. Most have so far had mixed results, and the efficacy of these latest measures are the subject of this report.
- A re-engagement process with the international community that started in 2017 and involved dialogue and cooperation with various bilateral and multilateral partners on issues such as economic reforms, governance, human rights and development assistance. The process aimed to improve Zimbabwe's relations with the international community and attract more foreign investment and support. This has culminated in the recent engagement involving the Africa Development Bank, IMF the Paris Club and others, which is working on the US$3.5 billion repayment for farm improvements for all whose land was expropriated by the state.
- A chronic balance of payments problem that resulted from a large trade deficit that averaged 12.4% of GDP between 2010 and 2019, caused by low export earnings from commodities such as tobacco, gold, platinum and diamonds, and high import demand for consumer goods, intermediate goods, capital goods and fuel. The trade deficit was partly offset by remittances from the diaspora that averaged 2.7% of GDP between 2010 and 2019.
After the brief respite engendered by the Zimbabwe's Government of National Unity (GNU), formed on 13 February 2009, prior challenges of the previous decade creeped back to the fore. Noteworthy economic challenges, to date, include;
- A severe liquidity crunch that constrained economic activity and growth, as well as access to credit and financial services. The liquidity crunch was caused by several factors, such as dollarisation that reduced money supply growth, externalisation of foreign currency that drained capital out of the market, low confidence in the banking system that increased cash hoarding and informal transactions, high non-performing loans (NPLs) that impaired banks' balance sheets and lending capacity, and limited interbank market operations that hindered liquidity management.
- A weak productive capacity that hampered economic diversification and competitiveness. The productive capacity was weakened by several factors, such as low investment in infrastructure, technology, innovation and skills development; high production costs due to inflation, exchange rate depreciation, taxation and regulation; low productivity due to inefficiency, corruption.
- Low productivity due to inefficiency, corruption, mismanagement and politicisation of state-owned enterprises (SOEs) or parastatals that dominated key sectors such as agriculture, mining, manufacturing and utilities; and low value addition and beneficiation of natural resources that reduced export earnings and growth potential.
- A deteriorating social context that worsened poverty, inequality, unemployment, health and education outcomes. The social context was deteriorated by several factors, such as high inflation and exchange rate depreciation that eroded real incomes and purchasing power; and low economic growth and formal employment opportunities that increased informality and vulnerability.
- These structural problems and challenges have persisted despite the various policy measures adopted by the government over the years. They have also been exacerbated by the COVID-19 pandemic that hit the country in 2020 and 2021, causing a severe health and economic crisis.
- In this context, Professor Mthuli Ncube announced a new set of policy measures on 29 May 2023, to stabilise the ZWL, generate foreign currecny for the government and prevent its externalisation. The new policy measures are analysed in the following sections of this report.
Section 2: Macroeconomic fundamentals of Zimbabwe on the day of the announcement
- This section reviews the macroeconomic fundamentals of Zimbabwe on the day of the announcement, using various indicators, methods and sources to assess the gaps and challenges in achieving the targets set by the National Development Strategy 1 (NDS1).
- The NDS1 is Zimbabwe's five-year development plan that covers the period 2021-2025. It aims to achieve an upper middle-income status for Zimbabwe by 2030, with a per capita income of US$3,500. It also aims to achieve an average annual real GDP growth rate of 5%, an average annual inflation rate of single digit, an average annual fiscal deficit of 3% of GDP, an average annual current account surplus of 3% of GDP, an average annual public debt to GDP ratio of 70%, and an average annual unemployment rate of 15%.
- The following table shows the actual values of some of these indicators for Zimbabwe on the day of the announcement, based on data from the IMF and domestic authorities.
| Indicator | Unit| 2020 | 2021 | 2022 | 2023 |
| Real GDP growth | % | -8.3 | 5.8 | 3.4 | 3.6 |
| Inflation (annual average) | % | 319.0 | 213.0 | 100.0 | 761.5 |
| Fiscal balance (% of GDP) | % | -9.6 | -8.1 | -6.5 | -5.0 |
| Current account balance (% of GDP)| % | -4.2 | -3.8 | -3.5 | -3.0 |
| Public debt (% of GDP) | % | 82.3 | 85.6 | 86.8 | 87.5 |
| Unemployment rate (official) | % | 11.3 | 11.4 | 11.2 | 10.9 |
- The table shows that Zimbabwe is far from achieving the targets set by the NDS1 on most of the indicators.
The country was expected to experience a modest recovery in 2023, but still below the desired growth rate of 5%. However the advent of macroeconomic challenges of the months March, April and May 2023 are threatening even that growth projection.
The country is also facing very high inflation rate that is at the very heart of the interventions which are the object of this report. The country is also expected to run a large fiscal deficit that will exceed the limit of 3% of GDP and increase the already high public debt burden that will surpass the threshold of 70% of GDP. Over that, the country is expected to have a negative current account balance that will fall short of the surplus target of 3% of GDP and reduce its foreign exchange reserves and import cover. The unemployment rate, even at an official measure, will likely remain above the NDS1 goal.
- The table shows that Zimbabwe is far from achieving the targets set by the NDS1 on most of the indicators. The country is expected to experience a deep recession in 2020 and 2021, followed by a modest recovery in 2022 and 2023, but still below the desired growth rate of 5%. The country is also expected to face a very high inflation rate that will gradually decline but still remain above the single digit target. The country is also expected to run a large fiscal deficit that will exceed the limit of 3% of GDP and increase the already high public debt burden that will surpass the threshold of 70% of GDP. The country is also expected to have a negative current account balance that will fall short of the surplus target of 3% of GDP and reduce its foreign exchange reserves and import cover. The country is also expected to have a high unemployment rate that will remain above the goal.
- The country is also expected to have a high unemployment rate that will remain above the NDS1 goal of 15% and increase poverty and informality.
The table above goes on to show that Zimbabwe’s macroeconomic performance on the day of the Minister's announcement was mixed, with some indicators showing better than expected results and others showing worse than expected results compared to previous projections.
Noteworthy is that;
-The real GDP growth rate for 2023 was projected by the government at 3.6%, which is lower than the IMF projection of 4% for this year. Yet with this current tumult it may yet be lower by end of the year. This may however, be bolstered by an increased pricing of mining commodities on the global market, led by gold.
-The inflation rate for 2023 was projected at 86.5% by end of the year, which was higher than the IMF projection of 50%, yet with a reported inflation of 761% as at May 2023, then the end of year projection may need to be revised to match conditions and performance of the past quarter.
-The fiscal balance for 2023 was -5% of GDP, which was better than the IMF projection of -6% of GDP. This was mainly due to higher than expected revenues from taxes, fees and grants, and lower than expected expenditures on wages, subsidies and transfers.
-The current account balance for 2023 was -3% of GDP, which was better than the IMF projection of -4% of GDP. This was mainly due to a smaller than expected trade deficit, caused by an increase in export earnings from commodities such as gold, platinum and diamonds, as mentioned earlier, and a decline in import demand for consumer goods, intermediate goods, capital goods and fuel.
-The public debt for 2023 was 87.5% of GDP, which was higher than the IMF projection of 86% of GDP. This was mainly due to a rise in domestic debt as a result of increased borrowing from banks and financial institutions to finance budget deficits.
These gaps and challenges in achieving the targets set by the NDS1 indicate that Zimbabwe's macroeconomic situation on the day of the announcement was fragile and vulnerable to various shocks and uncertainties. They also indicate that Zimbabwe's macroeconomic policies on the day of the announcement may have been inadequate and ineffective to address the underlying structural problems and challenges that continued to plague the country's economy and society, unless more are in the pipeline.
- Therefore, there was a need for new policy measures that could stabilise the ZWL while supporting its adoption, as well as enhance economic growth and development, reduce inflation and exchange rate volatility, improve fiscal and external balances, reduce public debt and unemployment, and improve social welfare and human development.
- The new policy measures announced by Professor Mthuli Ncube on 29 May 2023 are analysed in the following sections of this report.
Section 3: Assess the impact of corruption and sanctions on Zimbabwe's economy and society
- This section assesses the impact of corruption and sanctions on Zimbabwe's economy and society, outlining the main economic and social outcomes and the policy measures implemented by the government to address them.
- Zimbabwe’s economy and society have suffered for a long time from two major challenges: corruption and sanctions. Corruption means using public power for personal benefit, while sanctions mean the limitations placed on Zimbabwe by foreign actors for alleged violations of human rights and democracy. These challenges have contributed to the decline of Zimbabwe’s living standards, public services, and political stability. They have also isolated Zimbabwe from the international community and hindered its development prospects.
- The country's economy and society have suffered for decades now from two major challenges: corruption and sanctions. These challenges have contributed to the decline of Zimbabwe's living standards, public services, and political stability. They had for long also isolated Zimbabwe from the international community and hindered its development prospects, although we have witnessed in the last couple of years a concerted effort to mend fences with that constituency.
- The impact of corruption and sanctions on Zimbabwe's economy and society can be summarised as follows:
Corruption undermines economic growth, efficiency, and competitiveness by diverting public resources, distorting market incentives, increasing transaction costs, eroding trust, and discouraging investment.
According to Transparency International, Zimbabwe ranked 157th out of 180 countries in the Corruption Perceptions Index in 2022, with a score of 24 out of 100, indicating a high level of perceived corruption in the public sector. And according to the World Bank, Zimbabwe loses more than US$1 billion per year to corruption, which is equivalent to about 4% of its GDP.
The African Development Bank report titled “Zimbabwe Economic Outlook” published in 2021 (URL: https://www.afdb.org/en/countries/southern-africa/zimbabwe/zimbabwe-economic-outlook , on page 2 states :
“According to the African Development Bank, corruption reduces Zimbabwe’s annual GDP growth by about 1.5 percentage points.”
- On the other hand, sanctions constrain Zimbabwe's economic development, integration, and cooperation at an even larger scale by limiting access to finance, trade, investment, technology, aid, etc. from foreign sources, (Government of Zimbabwe. 2020. The Impact of Sanctions on Zimbabwe’s Socio-Economic Development: A Call for their Removal. Harare: Government of Zimbabwe).
- According to the Government of Zimbabwe, sanctions imposed by the United States (US), the European Union (EU), and other countries or entities have cost Zimbabwe more than US$42 billion in lost revenue since 2001. RBZ, in its 2020 Monetary Policy Statement headlined: "Walking the Talk to Restore Macroeconomic Stability and Sustainable Growth in Zimbabwe," stated that sanctions have resulted in more than US$4.5 billion in blocked or delayed external payments for goods and services since 2009. That is equivalent to the entire national budget for 2021!
- The United Nations (UN) as well acknowledges that sanctions have adversely affected Zimbabwe’s socio-economic development by reducing its capacity to respond to humanitarian needs such as food security, health care, education, water and sanitation etc. This is their report "The Coordination of Humanitarian Affairs (OCHA), of 2020 with the title "Zimbabwe Humanitarian Response Plan January-December. New York: OCHA."
The policy measures implemented by the government to address both corruption and sanctions include:
On Corruption
Establishing anti-corruption institutions such as the Zimbabwe Anti-Corruption Commission (ZACC), the Special Anti-Corruption Unit (SACU), the National Prosecuting Authority (NPA), etc. to investigate and prosecute cases of corruption. ZACC was established in terms of Section 254 of the Constitution of Zimbabwe Amendment Act (No. 20) Act, 2013. SACU was established by President Emmerson Mnangagwa in 2018 to collaborate with ZACC and other investigative agencies of the State in the fight against corruption. While the NPA was also established in 2013 with the advent of the new constitution, in terms of Section 258 of the said document.
The jury is still out on the effectiveness of these entities thus far as the country still features lowly on global corruption indices and the sanctions are still pervasive to date.
Enabling legislation has, however, since been enacted to align with these sections of the constitution, like the anti-corruption laws such as the Public Entities Corporate Governance Act [Chapter 10:31] of 2018, provides for the governance of public entities in compliance with Chapter 9 of the Constitution and a uniform mechanism for regulating the conditions of service of members of public entities and their senior staff. It also establishes the Corporate Governance Unit within the Office of the President and Cabinet to monitor and evaluate the performance of public entities.
The Money Laundering and Proceeds of Crime Act [Chapter 9:24] of 2019, of the Zimbabwean laws, provides for the prevention and detection of money laundering, combating the financing of terrorism and proliferation, and forfeiture of property involved in or derived from money laundering, terrorist financing or proliferation. It also establishes the Financial Intelligence Unit within the Reserve Bank of Zimbabwe to collect, analyse and disseminate financial intelligence to relevant authorities.
The Freedom of Information Act [Chapter 10:33] of 2018, provides for access to information held by public entities or persons in accordance with Section 62 of the Constitution and for the protection of personal information held by public entities or persons. It also establishes the Zimbabwe Media Commission as an independent body to promote freedom of expression and access to information, empowering it in its "fourth estate" watchdog function.
All these acts are the arsenal prevent and combat corruption. Now the authorities, with all this data showing likely corruption taking place in the country, have to understand why the country has such a low conviction ratio prosecution dockets processed by ZACC. Case in point being a newspaper report by The Herald Newspaper on 21 July 2021 saying, "ZACC... secured 10 convictions out of the 152 cases that were brought before the courts that year."
On Sanctions
Lobbying for the removal or easing of economic sanctions on Zimbabwe by engaging with sanctioning countries or entities through bilateral or multilateral platforms such as the Southern African Development Community (SADC) is an ongoing process. SADC declared in August 2019 that October 25 is a solidarity day against sanctions on Zimbabwe; the AU passed a resolution calling for an end to sanctions on Zimbabwe in February 2020; the UN Human Rights Council (UNHRC), adopted a statement in September 2020 urging sanctioning countries to lift the sanctions off of Zimbabwe; etc.
The government has also ratified or acceded to various international instruments such as the International Covenant on Civil and Political Rights (ICCPR) [16], the Convention against Torture and Other Cruel, Inhuman or Degrading Treatment or Punishment (CAT), etc. to demonstrate its commitment to human rights and democracy.
However, despite these efforts, the government has faced resistance and criticism from some of the sanctioning countries or entities that have maintained or even tightened their sanctions on Zimbabwe, citing lack of sufficient progress or evidence of reforms.
For example:
- The US extended its sanctions on Zimbabwe for another year in March 2023, stating that Zimbabwe continues to pose an “unusual and extraordinary threat” to its foreign policy.
- The UK imposed new sanctions on four senior security officials in Zimbabwe in February 2023, accusing them of human rights violations during the post-election violence in 2018.
- The EU renewed its sanctions on Zimbabwe for another year in February 2023, although it lifted its measures on one individual and one entity that were no longer involved in undermining democracy or human rights in Zimbabwe.
These actions have provoked strong reactions from the government and its allies, who have denounced them as unjustified, illegal, and counterproductive. They have also called for dialogue and cooperation instead of confrontation and isolation.
The purple patch is that re-engagement process is bearing some fruits with the IMF, Paris Club, Afrexim-Bank and Africa Development Bank all recently announcing that they are willing to support Zimbabwe’s debt clearance and economic recovery efforts.
Some of the recent developments in Zimbabwe’s re-engagement process include:
- The IMF completed its second Staff-Monitored Programme (SMP) with Zimbabwe in December 2021 and approved a third one in March 2022, which ran until September 2022. The SMPs are designed to help Zimbabwe implement key economic and social policies and reforms to restore macroeconomic stability, strengthen governance and transparency, and mobilise development partners’ support.
- The Paris Club of creditor nations (Australia; Austria; Belgium; Brazil; Canada; Denmark; Finland; France; Germany; Ireland; Israel; Italy; Japan; Netherlands; Norway; Russia; South Korea; Spain; Sweden; Switzerland; and United Kingdom) agreed in June 2022 to provide debt service relief to Zimbabwe under the G20 Common Framework for Debt Treatments beyond the Debt Service Suspension Initiative (DSSI). This will allow Zimbabwe to defer its debt service payments to the Paris Club until December 2023 and negotiate a comprehensive debt restructuring with its creditors.
- The AfreximBank approved a $1.4 billion bridge loan facility for Zimbabwe in July 2022 to help clear its arrears to the World Bank and the African Development Bank (AfDB). This will pave the way for Zimbabwe to access new financing from these institutions and other development partners.
- The AfDB also spearheaded a $3.5 billion former farmers repayment plan in August 2022 which was renewed in May 2023, and it aims to compensate white farmers who were evicted from their land during the land reform programme. The plan involves issuing a 10-year bond on international markets, backed by a guarantee from the AfDB and other donors. The plan is expected to improve investor confidence, agricultural productivity, and social cohesion in Zimbabwe
Section 4: Capital Markets, Banks, and Money Expansion
The country post 2009 was characterised by slack in monitoring which led to a difficult situation becoming worse. Mobile money platforms and the ZSE had become vital for Zimbabwe's financial system, especially in the context of cash shortages, hyperinflation, and foreign currency scarcity. They had become sources of market distortions, exchange rate speculation, corruption, and parallel trading. The authorities eventually had to intervene to restore stability and order in the economy.
- The ZSE had jumped 677% since January 1, 2020 despite the country expecting GDP to shrink by more than 10%. This became a source of ungoverned liquidity in the economy as traders took their windfall to the parallel market.
- Old Mutual is a big player on the ZSE with shares listed in London, Johannesburg and Harare and at this time comparison of its shares made for a derived Old Mutual Implied Rate (OMIR) which became the default acceptable exchange rate for the ZWL to the USD. Unfortunately, because the counter was a safe refuge for store of value amid the mading inflation rates prevailing at the time, it meant the share value was not the true value but a reflection of its demand. This meant the economy was being shortchanged by the OMIR and thus its movement to the new USD denominated Victoria Falls Exchange (VFEX).
- Mobile Money Transfer Agencies (MMTAs) in that time also helped exacerbate the situation. Ecocash, a giant in the Zimbabwe MMT playfield, at peak was servicing above 75% of the 14.5m population and handling a reported US$6 billion annually and yet allowed to operate unhindered for plus 9 years outside Central Bank supervision. Their actions in money expansion was not insignificant hence action was necessary. Unsurprisingly, both the exchange and the MMTA were to be shut to reset, but damage was already done.
some of the effected changes for MMTAs included having them connected directly to RBZ; users were to be restricted to just one mobile wallet account per person and a daily transfer limits and other changes. As for the exchange, another USD denominated exchange was announced; the government increased the capital gains tax on listed securities from 1% to 10%, and introduced a withholding tax of 10% on dividends paid by listed companies.
This reduced the attractiveness and profitability of speculative investing in the ZSE for both local and foreign investors, especially those that offload trades within 9 months; the government increased the intermediated money transfer tax (IMTT) from 2% to 5% on all electronic transactions above a given limit. all these contained the situation which was avoidable with better monitoring.
CONTINUES IN [PART 2] . . .