Institute of Security Studies (ISS) has accused government overspending for the current downward spiral in Zimbabwe’s economy.
Senior Research Consultant, Peace and Security Research Derek Matyszak said October’s economic turmoil in Zimbabwe highlighted the precarious state of the country’s economy.
“At the heart of the problem is government overspending,” Matyszak said. “The profligacy of the Mugabe administration has not changed under President Emmerson Mnangagwa’s government.”
“The total budget deficit for the year is expected to surpass US$2.3 billion – quite impressive for a country with a tiny national budget of US$3.8bn.”
The researcher said the deficit, which results from overspending, is funded by the issuance of government bonds- treasury bill
“The problem with these ‘IOUs’ (bonds) from government to the banks comes when the bills mature, i.e. become payable, after one or two years,” Matysak said.
“The government simply doesn’t have the money to pay the debts. But a default would render the $8.3bn worth of treasury bills out there almost valueless, destabilise the entire financial system and foreclose the bills as a way of raising money by government.”
Zimbabwe has in October witnessed a policy statement by a government official cause panic buying among consumers resulting in shortages of basic commodities like sugar, cooking oil and bread.
The ISS consultant also said government credits to the Zimbabwean banks are not backed by anything other than a second IOU from the administration to the Reserve Bank of Zimbabwe.
“In this way ‘money’ is created from thin air,” Matysak. “But it never loses its ethereal form.”
“When depositors go to banks and put their cards into ATMs, nothing comes out. The banks advise that the depositors must make do with electronic transfers for all transactions.”
“The transfers are done through the Real Time Gross Settlement (RTGS) clearance process,” Matysak goes on.
The government’s refusal to recognise that Zimbabwe’s RTGS money is on par to the US dollar at 1:1 creates a host of distortions in the economy like the supply of fuel according to Matysak.
“With the petrol price fixed at US$1.41 at the pump and payable electronically, those with hard cash change it on the black market for RTGS deposits and obtain fuel at knockdown prices,” Matysak said.
