Cash shortages continue to cripple Zimbabwe

Cash shortages continue to cripple Zimbabwe

In an ever-worsening cash shortage, a currency trader holds a placard with samples of old Zimbabwean dollar notes she is willing to buy with United States dollars on the streets of Harare in October 2016. Since December, new bond notes and coins have failed to solve the currency crisis.

(AP/Tsvangirayi Mukwazhi)

For 83-year-old pensioner David Kadiki of Old Mabvuku, a township east of the capital city of Harare, each payday has become a dreaded nightmare. He retired from government in 1998, gets a monthly pension of just US$80 and spends at least two nights sleeping outside the bank to receive his meagre earnings.

“I have to leave home as early as midnight in order to be in the queue before it gets too long and after getting a card with my number, I join others on the pavement where we sleep until the bank opens,” he tells Equal Times.

“When the bank finally opens, sometimes we then spend the whole day queuing, waiting for the cash to be delivered to the bank from the Reserve Bank of Zimbabwe. Sometimes we are told late into the afternoon that there will not be any money on that day and we go home, only to return again that night,” he adds.

Kadiki is not alone in this predicament, as millions of Zimbabweans across the country spend hours on end trying to access their hard-earned cash as the cash crisis in the southern African country, once dubbed the breadbasket of Africa, worsens.

Kadiki banks with the Central Africa Building Society (CABS), the largest building society in Zimbabwe, owned by Old Mutual Zimbabwe Limited. He said that when they finally get the money, account holders are limited to as little as US$20 per day, which sometimes comes in bond coins.

Bond notes and coins, a surrogate currency introduced by the country’s central bank in December, have failed to contain the situation and have instead disappeared from the formal banking system.

The use of credit and debit cards has also failed to address the crisis, as retailers are reluctant to fully embrace the payment system, preferring cash transactions. They have now introduced dual-pricing systems for cash and plastic money, with those using card payments being charged as much as 20 per cent more.

In some instances, some retailers do not even have cash registers despite a directive from the central bank to install them as a prerequisite for operating.

Political problem

Economic analyst John Robertson tells Equal Times that, while the cash crisis could be attributed to low productivity levels, it has deep-seated roots in the politics of the country.

“This crisis has its origins in politics and has become economic. There are no signs of these cash shortages ending anytime soon because we are unable to borrow any money and there is no stability,” he says.

Robertson adds that production in the country is low, hence the absence of meaningful exports and the prevailing price distortions.

Another economist, Prosper Chitambara, believes that the cash crisis in Zimbabwe is a result of the country’s structural economic crisis, with the bulk of the country’s economic activity now in the informal sector.

“This means that the bulk of the country’s hard cash is now circulating in the informal economy. The people have also lost confidence in the formal financial sector and choose to keep their money at home instead of banking it because there are no incentives for banking,” Chitambara notes.

Chitambara’s sentiments are echoed by another economist, Gift Mugano, who points out that only 2 per cent of the money that is in circulation in the country is in the banks, while Real Time Gross Settlements (RTGS, a system for large-value interbank money transfers) stand at just 30 per cent.

Mugano says the treasury bills that are issued by government, the high government debt and the country’s measly budget has contributed to the current situation in Zimbabwe, adding that the government has commandeered the majority of the money in circulation.

“We have a US$4 billion budget in a situation where total deposits in banks are US$6 billion, so the government is crowding out everyone from accessing money. The government has taken out all the money to pay salaries and banks,” he says.

He adds that Zimbabwe’s poor export performance has seen the country paying out a total of US$30 billion for imports since dollarisation in 2009, in addition to the export of jobs.

Mugano believes that Statutory Instrument (SI) 64, a mechanism introduced by the government in June 2016 to ban the importation of some goods into the country to protect local industry, has not yielded the required results.

“While Zimbabwe imports around 10,000 everyday products, SI 64 only covers 43 so the impact is not significant,” says Mugano.

“There is also the issue of smuggling. People are selling goods smuggled into the country because we failed to create alternative jobs,” he says.

According to Mugano, the government should embark on serious reforms that encourage foreign direct investment and cut spending.

Kipson Gundani, a local economic analyst, thinks people have lost faith in the financial sector following the hyperinflation of 2008, while the negative interest rates in Zimbabwe’s banks are scaring depositors.

“I suspect that most people are withholding their cash because there is a historical mistrust of the government after the hyper-inflationary era of 2007-2008,’’ he tells Equal Times.

“So we need significant institutional reforms to bring back that trust.”