Instead of bringing a sense of relief and stability, the announcement by Reserve Bank of Zimbabwe (RBZ) governor John Mangudya in his mid-term monetary policy statement last week that he will soon inject an additional US$300 million in bond notes has only helped to fuel uncertainty. This shows that unless there is a major policy shift, the economy will remain in the doldrums, analysts say.
The bond notes, introduced initially in the form of coins to facilitate the availability of change before being introduced as notes to incentivise exports, have become a surrogate currency that has revived the black market. The re-appearance of money changers at street corners, who last week were charging a 30% premium on US$100 for customers with bond notes, is testament to the failure of the RBZ to bring stability to the market. The resurgence of the black market has clearly exposed the fallacy that the bond notes -- a bad currency -- would trade at par with the United States dollar, a good currency.
When the promissory currency was brought into circulation on November 28 last year, Mangudya said bond notes would only be used as an export incentive and depositors would be able to go to the bank and get the currency of their choice, including the US dollar. This was met with strident protests countrywide with even demonstrations held against the notes amid fears that the introduction would trigger economic chaos. One demonstration held in Harare in November last year against the bond notes ended up in running battles with the police.
As feared by many, the reality on the ground is far removed from Mangudya's undertaking when he introduced the bond notes. Not only are depositors failing to access currencies of their choice as espoused by the central bank governor, but are also spending long hours in bank queues only to get as little as US$20 in bond notes.
Some have resorted to sleeping in queues as a means of ensuring that they get money from the bank. Such has been the severity of the cash crisis that most banks are giving customers cash in denominations of 5, 10, 25 and 50 cent coins in plastic containers.
Questions continue to swirl around the central banks' claim that the bond notes are backed by a loan from Afrieximbank. Failure by both the RBZ and Afrieximbank to provide documentation of the agreement has raised doubts, as well as fears that the bond notes will soon fuel inflation.
Controversy over bond notes have been aggravated by the RBZ's failure to put in place an independent board as promised by Mangudya. However, the central bank governor has since changed tune with an explanation that has found few takers.
"What we have said is that we want a monetary committee, but upon going back to the board, we found out that within the board, there is an independent committee, composed of only independent board members called the bank audit and oversight committee for the RBZ, where auditors report to and we found out that committee's mandate is to exactly do what we thought the oversight committee was going to do," Mangudya said last week.
The debilitating liquidity crunch and acute cash shortage are a manifestation of deep structural problems caused by poor governance and toxic policies.
Company closures, low foreign direct investment which has plunged from US$545 million in 2014 to US$319 million last year, declining exports and massive job losses which include the retrenchment of more than 2 000 workers in the first half of 2017 have had a devastating impact on the economy.
With Zimbabwe using other countries' currencies after printing its own out of existence, it has no monetary sovereignty and quantitative easing options. Given this limited access to foreign currency inflows, the ensuing fiscal imbalances have become unsustainable and are financed by rising domestic borrowing. The overvalued real exchange rate has hampered external competiveness. This has been worsened by budgetary operations which are crowding out the private sector with expenditure tilted towards employment costs among other unsustainable cost variables. The planned injection of more bond notes into the market is nothing short of catastrophic, according to former Finance minister Tendai Biti.
"Creating an expansionary monetary policy and broadening money supply when you have got an expansionary fiscal policy and when you have such severe disequilibrium is a disaster," Biti said. "It is feeding the beast of toxic debt. It is feeding the beast of spending money as if on steroids. You need restraint."
Biti equated Mangudya's plan to pour more bond notes into the market to "treating an alcoholic by locking him in a bottle store and throwing away the key."
Economist and Buy Zimbabwe executive Oswell Binha said the injection of more bond notes into the market will fuel uncertainty. "The statement is actually an uncertainty. The statement starts and ends with bond notes. They do not work unless you give statements that give confidence to the economy," Binha said.
Binha added that the bond notes have resulted in the hedging of bond notes against stable currencies, creating uncertainty in the market.
"The Reserve Bank governor is between a rock and a hard place. Unless and until we deal with the fundamentals of reconstructing and reforming the economy, it (printing of more bond notes) will not be enough," he pointed out.