Bond notes split nation
Days before the introduction of bond notes, deep-rooted uncertainty has gripped the nation as the Reserve Bank of Zimbabwe (RBZ) takes a trajectory that might make or break the nation depending on whether it would be allowed to enjoy autonomy in discharging its mandate by those who wield political influence, the Financial Gazette can report.
A siege mood has enveloped a shattered populace in the wake of the impending bond notes, described by President Robert Mugabe as a surrogate currency to the United States dollar — the dominant unit in the basket of currencies underpinning Zimbabwe’s multi-currency regime.
It has become inevitable that the monetary authorities should act. The liquidity crisis has worsened and business has slowed down to a crawl across all sectors of the economy, such that the growth projected this year by Finance Minister Patrick Chinamasa as well as the slump forecast by the International Monetary Fund (IMF) could be revised downwards once again. The IMF projects the economy to shrink by -0,3 percent, from an earlier forecast of 1,4 percent. As expected, government’s forecasts are slightly higher. Whereas Chinamasa had projected the economy to grow by 2,7 percent this year, he downgraded his figure to 1,2 percent in his mid-term fiscal policy statement.
Pessimists are predicting chaos in the aftermath of the introduction of the bonds notes, warning that they could trigger a resurgence of the 2008 currency black market. But optimists see things differently. They believe that a lot would depend on how the central bank would conduct itself going into the future. Judicious management of the Africa Export Import Bank (Afreximbank) facility that supports the bond notes at levels at par or below the US$200 million cap may not upset the markets, according to optimists, but incentivise exporters into producing more as they would be entitled to a five percent incentive based on the value of their exports. A lot might also depend on how the RBZ would enforce discipline in the market by maintaining a fine balance between moral suasion and use of legal tools at its disposal.
As of 26 October, desperate retailers, especially those that are still to migrate to point of sale (PoS) machines, were now agitating for the quick introduction of the bond notes, which they hope would ease the cash crunch and turn around their fortunes. RBZ governor, John Mangudya, admitted over the weekend that even banks were now in a precarious position, having revised downwards cash withdrawal limits for their customers on many occasions. Bank queues are getting longer by the day, as financial institutions are struggling to dispense cash in the wake of the tightening liquidity situation.
While there has been a huge increase in transactions going through PoS machines, the bulk of the population is still using cash in their daily chores, thus putting pressure on the available resource. There is also a backlog of telegraphic transfers, commonly known as TTs, because banks’ nostro accounts are running dry.
A nostro account refers to an account that a bank holds in foreign currency in another bank. As nostro accounts balances deplete, there is now a huge backlog of TTs still to be processed. Resultantly, companies are struggling to retool; acquire imported raw materials and bring into the country products that are not manufactured locally. Consequently, there has been a spike in prices as predatory retailers take advantage of the emerging shortages of some products to make a killing.
Agitated by an economy that has run out of everything from cash to ideas, the ordinary man in the street and captains of industry and commerce are in a quandary, torn between embracing the bond notes or rejecting them.
Mangudya — the man carrying the nation’s hopes based on the sincerity he has demonstrated over the years — made his final plea to calm the markets at the weekend. He was adamant on 26 October that his strategy was different from the one employed during the era of bearer cheques when the RBZ had the latitude to run the printing press. That freedom ended in 2008 when the Zimbabwe dollar crushed out of circulation because of hyperinflation — wiping out lifelong savings. At the time, bearer cheques were printed in huge volumes to cope with the high demand for Zimbabwe dollar banknotes although that did very little to improve the situation.
Mangudya has been busy engaging stakeholders, but regardless of his assurances, the bond notes have sharply divided opinion. Retailers, among them the Retail Association of Zimbabwe (RAZ) and the Confederation of Zimbabwe Retailers (CZR) have thrown their full weight behind them.
With psychological scars left by the demise of the country’s own Zimbabwe dollar currency in 2008 still fresh in many people’s minds, the bond notes have rekindled sad memories of hyperinflation, estimated by the IMF at the time to have reached 500 billion percent. All this is happening at a time when employment in the manufacturing sector has slumped to 85 000 this year, from a peak of 200 000 in 2009, according to the Confederation of Zimbabwe Industries (CZI), which outrightly rejected the bond notes this week.
Mangudya has, however, stuck to his guns that the bond notes will be used to support exporters who are critical to the generation of foreign currency, which is now in short supply in Zimbabwe. He has also been adamant that the bond notes will trade at par with the US dollar and that no one will be forced to use them as the multi-currency regime will remain in force.
The Zimbabwe Congress of Trade Unions (ZCTU) hit out at authorities this week for ignoring the real fundamentals behind an economic crisis that has showed no signs of relenting in the past four years. At the heart of the turbulence has been the deteriorating liquidity situation, which the ZCTU said government was doing very little to address. “The major problem is well known to everyone that the country is not producing and industry is on its knees. The current RBZ chefs are repeating the same measures that were employed before and failed to work,” ZCTU secretary general, Japhet Moyo told the Financial Gazette this week. “They (government) have skewed priorities and think printing pseudo dollars is the solution. In fact, the introduction of the bond notes will worsen the plight of workers as more companies will sink due to failure to access real money to rejuvenate their operations,” he said.
An economist at the Labour and Economic Research Institute of Zimbabwe, Naome Chakanya, warned that a black market for US dollars could resurface, thus creating more problems for the economy, including inflation. “Some are going to accept them, some are going to reject them; others will be frog-marched to accept the bond notes since the cash crisis is worsening,” said Chakanya.
(The Financial Gazette/Harare)