By Takura Zhangazha*
Zimbabwe's current cash crisis was always going to be a development that to all intents and purposes is not understood by a great many Zimbabweans. And in similar fashion the solution to it was going to appear more in keeping with somewhat simplified populism but innately problematic underpinnings. As recently reported by a local weekly paper, the country is set to ‘import’ US$ 200 million in order to alleviate what business experts, economists and accountants refer to as a ‘liquidity crisis’ or 'cash crunch'.
Quoting the governor of the Reserve Bank, John Mangudya, the story outlined that the primary source of this money is the African Export and Import Bank (AfreximBank). It is also the same bank that has already underwritten, via another US$50 million loan, our other currency, the ubiquitous bond coin.
This new money that is going into be injected into our financial system is also part of a broader loan agreement we have, again with the same bank that comes to a total of at least US$ 1, 3 billion. So it is not charity but further debt. It is also debt that is not accrued by philanthropic individuals on behalf of the country, but by our government and as a result thereof, by all Zimbabwean citizens.
In terms of global fiscal practice this is not a new practice. The European Central Bank and the American Federal Reserve have as recent as the 2007/8 global financial crisis practiced what they refer to as ‘quantitative easing’. This is a euphemistic term for when central banks print money to inject into their economies in the midst of a cash crisis or where and when their economies are in recession.
It is broadly intended a s a measure to increase the availability of money to banks and as a result thereof other businesses and thus make the market or consumers able to purchase more at somewhat cheaper cost. Financial lending institutions will also offer loans/mortgages at lower interest rates due to the increased availability of money in the market. The general functional logic is that if there is more money available at cheaper cost, a depressed economy will pick up through a trickle-down effect to low end economic players.
The major risks associated with this practice is that it has what are largely referred to as short term benefits or economic bubbles that inevitably burst. Especially where the trickle down does not bear long term results. The end effects, particularly in poorer or developing countries of such a strategy by central banks is normally inflation, capital flight and high levels of debt and unemployment. A greater risk is that of political instability.
In our case however, the injection of US$200 million into the economy on the backdrop of a loan is a double dilemma. In the first place our Reserve Bank does not print/make the money that it is introducing into the economy. It borrows or pays for it with significant amounts of interest and thus contributes to our already high international debt.
Secondly there is no guarantee that the assumption of a trickle-down effect of such an injection of cash would occur either in the immediate or short term.
The reasons for this are varied but the most significant being that of a lack of public confidence in our fiscal system by the very same intended first beneficiary, private capital. Recent announcements by the president of billions of dollars that are unaccounted for in relation to diamond mining remittances to the state are a case in point. Furthermore, the ministry of finance has also regularly stated that there is a major problem of illicit financial flows from the country and therefore there is a challenge of fiscal and corporate transparency and accountability.
A legitimate question that might therefore be asked by many a Zimbabwean citizen is whose money is it anyway? This being a question primarily to inquire after who would be the primary beneficiaries of such a cash injection into the economy without an adequate public explanation as to who and what is causing the liquidity crisis in the first place.
In the process, it appears more likely that this new cash injection will not in our specific case have as its key deliverable a trickle-down effect. Unless there is greater transparency and accountability as to how and when this new money will actually reach a majority poor Zimbabweans as opposed to only tobacco farmers. Even if only after those at the top of our elitist and voracious economic food chain have gulped down most of it.
What is increasingly apparent is the fact that with each debt or loan agreement that we are signing up to, our national economy shall increasingly be out of our control. We are now firmly at the mercy of the global financial markets and this latest attempt at quantitative easing by the Reserve Bank will leave us the worse for wear. And with no trickle-down effect in sight.
*Takura Zhangazha writes here in his personal capacity (takura-zhangazha.blogspot.com)