Is the Zimbabwean economy getting better?

As the tottering faded white commuter omnibus leaves the Market Square bus terminus, there is dead silence inside, and the only sound is of the squeaky vehicle. The conductor breaks the silence after about three minutes into the journey.

“My rate (USD to ZWL$) is at 800 parents,” the conductor says, in the commuter omnibus heading to the dusty high-density suburb of Glen View.

Subsequently, discord arises. One of the passengers, a male, gives the conductor a US$5 note and says his rate is ZWL$ 900 per US$1. Evidently, the man does a dirty job, as he is in a greasy black shirt with his brown afro uncombed.

The conductor disputes this notion.

“I work in Mbare, and the rate there is 900. It would be very unfair for you to give me 800,” the middle-aged man challenges.

Unfortunately, the ‘Mbare man’ loses this battle as the other passengers fight in the conductor’s corner.

One of the passengers, who had clandestinely not paid her fare, an old woman, speaks at the top of her voice:

“We are not the ones who make these rates, so we can do nothing. You, Mbare man, just take the 800 because that is the rate the conductor here uses. When I paid, the conductor used that 800, that you are refusing, to give me change.”

Even though she lied that she had paid her fare, she was honest that she was not responsible for the rates.

For the past years, the Government has been making efforts to manage high inflation but failing to come up with a lasting cure for the infection.

In July last year, the Reserve Bank of Zimbabwe (RBZ) introduced gold coins that were meant to control inflation.

The inflation soared to an earth-shattering 184.1% on average as the Zimbabwean dollar (ZWL) averagely depreciated by about 13% monthly. Building on the momentum of inflation, the prices of basic commodities became unaffordable for ordinary households whose majority is poor. This comes at a time when the salaries of civil servants remain constant.

According to a 2022 World Bank report, at least 40% of Zimbabweans are living in poverty, which some analysts believe is caused by increased fiscal spending especially in the last quarter of 2022 when the Government spent a lot of money closing off the year.

Speaking to this publication, Economist Zvikomborero Sibanda said the fiscal spending is likely to remain high as the elections are looming.

“ZWL depreciation is largely emanating from excessive liquidity growth in the market being caused by increased fiscal spending. In the fourth quarter, government spending mounted as it paid 13th cheques, contractors, and agricultural subsidies. In 2023, fiscal spending is likely to remain elevated as the nation gears for harmonized elections. Apart from liquidity issues, ZWL depreciation is caused by a weak exchange rate management mechanism in place which is inhibiting efficient price discovery. More so, human behavior speculative attacks and arbitrage activities are contributing to ZWL decline,” he said.

With the coming in of gold coins last year in July, the public had mixed feelings over them whilst the RBZ said the gold coins would be used as a store value. Other countries use actual gold as a store value.

During the launch of the gold coins last year, RBZ Governor Dr. John Mangudya said,” There is no other better product that can be used as a store value other than gold. We know what the people of Zimbabwe have been going through in terms of the fear factor of losing value.”

However, a few months down the line, the rates started soaring once again. The gold coins seemed not to be working.

Economic analyst Mr. Persistence Gwanyanya said the rate increase which worsened during the last quarter of the year was temporary, even though the rates are still high.

“The episode of stability experienced in the greater part of the last half of the year is largely attributable to the introduction of gold coins and tight monetary policy stance typified by interest rate hike and liquidity mopping activities, supported by the value for money processes by Treasury.

‘However, as the year was winding down, Treasury had to release some liquidity towards outstanding payments to contractors, especially of infrastructure projects and suppliers especially wheat farmers, which resulted in a temporary shock in stability in December. We view this December episode as only temporary as the inflationary pressures are dissipating as pressures to inject liquidity have eased and Treasury returns judicious management of liquidity,” he noted.

In his “2023 Monetary Policy Statement at a Glance” Mangudya said they have a “Projected end-period blended annual inflation for 2023 of 10-30%.”

For a sustainable stable price trajectory, Sibanda highlighted that tight monetary targeting by the RBZ is not enough but should be accompanied by fiscal discipline. He also said that RBZ should have the liberty to make monetary policies that are not commanded by political will.

“This entails abolishment of quasi-fiscal operations and spending within government’s means -monetization of unsustainable fiscal deficits poses real risks such as potentially high inflation.

More so, authorities should fully implement economic and structural reforms to improve market competition and price discovery. With these reforms, fiscal authorities will be able to tighten public finance management systems to curb leakages from corruption and illicit transactions,” he noted.

Gwanyanya said a combination of monetary tightening by RBZ and judicious management of liquidity by the Treasury is able to return the stability of rates. He also said paying of services should be managed cautiously as it has the potential to destabilize the economy.

“Going forward we expect a return to stability owing to a combination of monetary tightening by RBZ and judicious management of liquidity by Treasury. We observed that payments to suppliers and contractors have the potential to spin the market out of control if not properly managed and the liquidity management committee is going to be strengthened to support judicious management of liquidity,” he said.