Zimbabwe Financial Crisis Deepens

The Zimbabwe economy has many problems but there’s one that’s threatening to finally to tip the balance into possible disaster.  Simply speaking the economy has run out of cash, leaving many sectors unable to function properly.

Typically a business will deposit money into their bank accounts but that doesn’t help.  Normally payments can be made electronically but usually only locally, most businesses will not be allowed to make payments outside Zimbabwe.  Obviously this is crippling for any firm which needs imports or foreign materials to support their core business.

The freeze on liquidity has affected all sectors, companies have been unable to pay their workers in cash.  Any sector which needs foreign suppliers have struggled because they’ve been unable to pay them, most of them just went out of business creating even more problems and unemployment.  It is estimated that the Zimbabwe economy shrank by 0.3% last year but that’s set to fall steeply to contract nearly 3% this year according to the IMF.

It is thought that the economy might slowly improve after Zimbabwe abandoned it’s defunct currency eight years ago and adopted the dollar.   The move at least stopped the raging hyper inflation unfortunately did little to help all the other problems in a floundering economy.  Indeed the strong value of the dollar made the situation even worse, exports are virtually non-existent and imports have become much more expensive.  There are very few banknotes left in circulation which makes day to day life very difficult for most Zimbabweans.

The typical reactive measures are being implemented which do little to solve any of the underlying issues.  The latest is a cap on withdrawals for customers at ATMs of $150, the reality is that this hasn’t been possible for months anyway.   No-one knows how much cash is circulating in the economy, the Reserve Banks suggests it’s about $4 billion however more impartial estimates think it’s about $100 million.

Unless action is taken soon, then the situation is only going to get worse without the ability to pay workers and suppliers businesses will obviously fail.  It would be surprising if the incompetent government led by Robert Mugabe will do anything constructive, the usual tactic is to blame foreign intervention for it’s economic woes.  The Mugabe Government has halved the size of the economy since 2000 with a variety of ridiculous decisions.

The most damaging was probably the land seize authorised by Mugabe.  Taking profitable, successful white owned farms and handing them over to individuals with no interest or skills in farming, crippling the agricultural sector in a few years.

Brian Collins

 

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