Thoughts on 2016 and a look at 2017
It is almost Christmas. Another year has gone by in Zimbabwe and we again look back on a year that has been full of changes with no change at all in the way we live or our Country is governed. The only relief is that we have had a short spell of rain which has brought relief to many parts of the country but still shows disturbing signs that climate change is no longer a projection but a daily reality.
The year opened with a sharp reduction in the amount of cash people could withdraw from their banks. This triggered a steady deterioration in the cash situation so that by the end of the year, restrictions were limiting daily withdrawals as low as $20. The reason for the bank crisis is a massive deficit in the budget which has resulted in the State issuing billions of dollars in the form of Treasury Bills and this has absorbed virtually all the real money in the banking system.
In 2016, the regime went two steps further in this process – first they started to take money illegally, from peoples accounts via the RTGS system and bank Nostro accounts. By the end of the year this was reflected in the accounts of the Reserve Bank as an unsecured, interest free overdraft. This paralysed the bank transfer system and by the end of the year transfers are being delayed by anything up to 6 months as the Bank struggles to find the money to meet their obligations and the needs of the country.
Then came the decision to issue a new currency – called “Bond Notes”. They have struggled with this decision, knowing full well that it could trigger a violent response from an already angry and frustrated population. Eventually they cautiously released $25 million in the new notes into the market. They made no difference to the cash situation as banks were forced to further reduce daily withdrawals. Queues lengthened outside all banks and the US dollar is trading at about an average premium now of 20 per cent.
A former Bank employee has told me that they have printed US$2,5 billion in the new currency and have been holding this in storage in Harare for months. Any move to release significant volumes of the new notes will lead inevitably to a sharp reduction in their real market value and inflation – which has averaged nearly minus 2 per cent all year, will start to gain momentum.