loan programs

Tracing Zimbabwe’s economic crisis: fuel shortages, hunger, inflation

Hunger, runaway inflation, power outages, fuel queues – Zimbabwe has been here before, but it’s been a decade since things have been this bad, say ever-resilient citizens from the capital, Harare.

The trigger for a sudden price spike came last month when the US dollar was dropped as legal tender, 10 years after Zimbabwe ditched its worthless local currency and became dollarised as inflation hit . 89.7-sextillion percent – this is 20 zeros.

The same ruling party is at the helm today as it was 10 years ago, noted Godfrey Kanyenze of the Zimbabwe Labor and Economics Research Unit, a trade union-linked think tank. And that added to the worries, he said, because few people trust it has the ability to pull the country out of the current mess – in which a third of the rural population is struggling to meet basic food needs.

Zimbabwe already faces a range of humanitarian challenges, with the UN and international aid groups filling gaps in food security, health care and HIV treatment, water and sanitation and social protection for vulnerable citizens.

“It’s management by crisis,” Kanyenze told The New Humanitarian. The government is “pushing a mantra of ‘austerity for prosperity’, but it is a faceless government and these are just knee-jerk reactions”.

The government says the decision to return to a single, Zimbabwean currency is crucial to stabilize the economy.

John Kazingizi sells fruit and vegetables with his wife at Hatcliffe Market, a densely populated suburb of Harare. “What worries me the most is that prices keep going up and my sales keep going down, because people aren’t buying like they used to,” he told TNH last week.

The couple struggle to find the money to buy a bit of fresh stock each day and meet basic household expenses, including paying off a debt they incurred to cover school fees of his five children. “We just need our economy to work again,” Kazingizi said.

the Zimbabwe Coalition on Debt and Developmenta social and economic justice NGO, argued that banning the US dollar and all foreign currencies would only stimulate the black market.

“It is necessary to address the root causes of the current monetary crisis, which are endemic corruption, poor management of public finances and the impunity enjoyed by those who fuel the crisis through arbitration and the haemorrhage of resources. “, noted the NGO in a press release. declaration.

The central bank’s decision did not end strike threats, which likely contributed to the government’s decision on the currency last month. The Zimbabwe Trades Union Congress is Warning he will call a stayaway to protest the rising cost of living, although he has yet to set a date.

The last time the unions carried out a work stoppage in January, following the sudden announcement of a fuel price increase 150 percent, security forces shot dead 17 people and raped 17 women, according to Human Rights Watch.

Fuel prices have risen three more times since January, with an average daily trip now costing up to $20.

More of the same

The cash-strapped government of President Emmerson Mnangagwa had long insisted that the Zimbabwean dollar would only be reintroduced when economic fundamentals were right.

Yet with inflation reaching almost 175% in June, 6-hour power cuts and 3.5 million people facing drought-induced hunger in the countryside, “the fundamentals are clearly out of whack”, noted Mike Chipere-Ngazimbieconomics researcher at the University of Pretoria in South Africa.

A disastrous harvest – with maize production down just 45 percent from last season – has compounded the difficulties. The World Food Program aims to provide food aid to 1.2 million people, but by March next year it is estimated 5.5 million won’t know where their next meal will come from.

When Mnangagwa came to power 18 months ago after a military coup ended President Robert Mugabe’s 30-year rule, he promised reforms.

But Mnangagwa, a stalwart of the ruling party, failed to deliver a program attractive enough to investors or multilateral financial institutions, or win over a country shocked by the army’s decision. violent application the outcome of last year’s close election.

the a point of light in Zimbabwe’s recent economic history, there was a period of coalition government between Mugabe’s ZANU-PF and the opposition Movement for Democratic Change which lasted from 2009 to 2013. Then GDP growth soared to over 9% – although overall poverty levels remained stubbornly high.

To save the country from hyperinflation, in which prices were doubling almost daily, an early decision in 2009 scrapped the Zimbabwean dollar in favor of a basket of foreign currencies. The downside was the shortage of foreign currency in an import-dependent economy where more dollars left the country than came in.

Since then, a always more creative a series of monetary policies have been put in place to address this problem.

Money puzzles

In 2016, the government introduced bond notes and coins, which were supposed to be worth the same as the US dollar. But they gradually lost value in the informal market – and became an immediate source of arbitrage benefits for well-connected people.

Mnangagwa’s government encouraged embrace mobile money to reduce the need for physical silver. According to the Reserve Bank, mobile money has been used to 85 percent of all retail transactions in the last quarter of 2018.

But high transaction fees and a 2% government tax make mobile money expensive, further eroding people’s purchasing power. In rural areas, where mobile money is the common payment system for livestock sales, people are turning to barter insteadaccording to FEWS NET, the USAID-funded Hunger Early Warning Monitor.

In February, as a step towards creating a local currency, the government introduced the Real Time Gross Settlement Dollar, or RTGS – actually a digital currency harmonize bonds, mobile money and debit cards linked to an official US dollar exchange rate.

Immediately, the RTGS dollar began to lose value in the parallel market.

“The economic situation makes us feel like orphans in our own country.”

Last month, the RTGS dollar was trading on the streets at around 13 to the US dollar, more than double the official interbank rate.

On June 24, the government abruptly decreed that the country’s only legal tender was RTGS, renamed it the Zimbabwean dollar, and abolished the use of multiple currencies. The aim was to end the informal market contributing to runaway inflation and restore state control over Monetary Policy.

Civil servants were threatening to strike, demanding payment in US dollars, and there was reports the military was also unhappy with their RTGS-denominated payment packages.

But the introduction of the Zimbabwean dollar has not stopped its slide into the black market, and shortly after the ban on the use of foreign currency was announced, Finance Minister Mthuli Ncube declared the Victoria Falls tourist destination exempt.

“It is very clear that the decision to switch to a local currency was made in haste,” said Kanyenze of the labor think tank. “The economy was re-dollarizeand especially the military demanded to be paid in dollars.

Kazingizi, the fruit and vegetable seller, said he saw few signs that things would improve anytime soon. His wife wakes up at 3 a.m. every day to go to the market, he says, but the family still struggles to keep afloat.

“The economic situation makes us feel like orphans in our own country,” he told TNH.

sn/oa/js