11 April 2014

Zimbabwe: Govt Fuels Liquidity Crisis

Photo: Antony Kaminju/IRIN
A woman sells vegetables at a food market in Harare.

Government is fuelling the country's already critical liquidity situation as it emerged this week that the state accounted for 60% of Zimbabwe's US$7 billion imports.

Zimbabwe has negative balance of payments position as imports exceed exports with a current account deficit of over US$3 billion in 2013.

Zimbabwe Revenue Authority (Zimra) commissioner general Gershem Pasi told a Parliamentary Portfolio Committee on Foreign Affairs this week government was the country's largest importer, bringing in goods worth over US$4 billion last year.

Pasi's disclosures came amid accusations Zimra was failing to meet its mandate -- to collect duty -- at a time imports exceeded exports.

"It is said there are leakages of US$7 billion worth of revenue from imports at ports of entry, but US$4,1 billion worth of those are government imports which do not pay duty, while others are imports from bilateral agreements like Comesa. Last year, we were at 29% of GDP (gross domestic product) in revenue collection and were amongst the highest in the world," he said.

Government has been criticised in the past for not living within its means and importing luxurious items such as top-of-the-range vehicles for cabinet ministers, senior civil servants and MPs.

Sources of liquidity such as exports, lines of credit, foreign direct investment (FDI) and diaspora flows (unrequited transfers) are not yielding much.

Growth in exports of goods and services has remained low, averaging less than 1% on a monthly basis over the past 12 months to September 2013, while imports have accelerated as domestic industry production decline.

Expansion in imports against static exports means the current account is widening and the economy is thus hemorrhaging liquidity. Lines of credit on the other hand are few and high-priced due to the risk premium attached to the current external debt and arrears.

This has also worsened Zimbabwe's liquidity position.

Analysts say the US$4 billion spent on imports could have been invested in the productive sectors of the economy.

Others say Zimbabwe is neither saving enough to invest nor attracting sufficient FDI to re-equip.

While billions are being funnelled to various offshore destinations for imports by government, offshore loans to retool industry are hard to come by.

Locally produced products are uncompetitive in terms of price and quality given that industry is stuck with old and antiquated equipment and machinery. Their competitors elsewhere are using state-of-the-art technologies and are generally more competitive.

Pasi also said Zimbabweans were exporting cash.

"There has been an influx of imports and for as long as our economy is not performing, people will continue to import," he said. "But we will be discussing the issue with the new RBZ governor (John Mangudya) because we are concerned about exports of cash since the current regulations allow a person to take US$10 000 cash per trip and there is no limit as to the number of trips one can take."

Pasi said Zimra wants a monthly cap on the amount of money people are allowed to export.

He said the months of January to March, Zimra managed to exceed its quarterly revenue collection targets by 2%.

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