Mnangagwa has tried to strike a more business-friendly tone than his predecessor, but his government hasn’t charted a meaningfully different fiscal course. Finance Minister Mthuli Ncube refused to cut the bloated government wage bill, even though it accounts for 95 percent of total expenditure and employs an estimated 200,000 “ghost workers” whose real job is to keep ZANU–PF in power. Instead, he has attempted to increase revenues by imposing regressive taxes on money transfers and increasing fuel levies. Even with these measures, Ncube anticipates a budget deficit of at least four percent of GDP for 2018.
Mnangagwa is also playing a dangerous game with Zimbabwe’s unwieldy currency regime. Back in 2016, following the binge budgets of the post-unity government years, the country began to experience severe shortages of hard cash. To ease the currency crunch, the government introduced a quasi-currency known as the bond note, which was pegged one-to-one to the U.S. dollar. Along with the real-time gross settlement dollar (RTGS dollar), another artificial currency that the government used to repay bondholders, the bond note immediately began to trade at a discount in the black market.
Soon after the election, Mnangagwa’s government tampered with the currency regime again, first requiring separate accounts for U.S. dollars and bond notes (despite maintaining an official one-to-one peg) and then merging the RTGS dollar and the bond note into a single electronic currency, also called the RTGS dollar. It then proceeded to partially liberalize the exchange rate, adopting a new peg of 2.5 to one for the new currency—although its value on the black market quickly fell below that. In June 2019, the government recognized the RTGS dollar as legal tender and rechristened it the new Zimbabwean dollar, while at the same time barring the use of the U.S. dollar. Today, the Zimbabwean dollar is worth around ten cents, and inflation is roaring back, having hit 175 percent officially in June and closer to 300 percent unofficially.
Although these quasi-currencies were ostensibly introduced to provide liquidity, their real value to ZANU–PF elites stems from the arbitrage opportunities they create.
Although these quasi-currencies were ostensibly introduced to provide liquidity, their real value to ZANU–PF elites stems from the arbitrage opportunities they create. Paired with preferential access to hard currency, bond notes and RTGS dollars fuel the patronage system that has kept the party in power for nearly four decades. For the rest of Zimbabwe’s 16 million people, de-dollarization has made things much harder, slashing salaries once earned in U.S. dollars, spurring inflation, and slowing growth. For the second time in Zimbabwe’s post-independence history, most people have had their savings wiped out overnight.
Sadly, the International Monetary Fund has gone along with this strange brand of economics. In May, it issued a staff report that all but endorsed Harare’s attempt to de-dollarize. The report claimed that “significant economic reforms are underway,” even though the promised reforms have yet to materialize. It also turned a blind eye to rising inflation, burgeoning shortages of basic goods, and huge currency distortions. It whitewashed Mnangagwa’s record and glossed over his extralegal path to power, noting that he “headed the transitional government following the resignation of former President Mugabe in November 2017,” despite the fact that he came to power through a military coup. Finally, it claimed that the 2018 elections “were viewed by international observers as mostly peaceful, free, and fair,” which was certainly not the view of the opposition supporters who were brutalized or the international observers who expressed grave reservations. In May 2019, the IMF approved a staff-monitored program for Zimbabwe, which, if the government plays its cards right, could lay the groundwork for a program of debt relief or debt cancellation in the future.
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