The government’s response to the protests reduces the likelihood of re-engagement with donors, an analysis on Zimbabwe by Flitch Solutions in its April 2019 Africa Monitor says.
Zimbabwean authorities, in January this year, deployed the police and the military personnel and shut down the internet to curb the protests that had developed after fuel price hikes by the government.
“Without donor re-engagement, the authorities will find it very difficult to tackle hard-currency shortages, raising the risk of further protests over economic under performance,” the analysis says.
“Structural current account deficits and relatively low levels of foreign investment mean that access to hard currency will remain very limited.”
The examiner also says such actions by the Zimbabwean authorities have broader implications since, under the Zimbabwe Democracy and Economic Recovery Act, US representatives at multilateral institutions such as the IMF and Paris Club will not support efforts to address Zimbabwe’s foreign debt.
“Although the South African government has called for the lifting of sanctions on Zimbabwe, action is unlikely in the short term,” the analysis says.
“The US authorities have previously stated that their sanctions will not be lifted until the Zimbabwean government establishes a track record of political reform.”
Zimbabwe has been under US and European Union sanctions for over a decade.
The Flitch Solutions analysis also says the introduction of a new currency in Zimbabwe would probably necessitate substantial official devaluation.
“In January Finance Minister Mthuli Ncube suggested that a domestic currency would be introduced within 12 months in a bid to address underlying foreign-exchange issues,” the Africa Monitor says.
“However, reserves currently total only around two weeks of import cover, while the fiscal deficit remains extremely high, meaning that the introduction of any new currency would probably necessitate substantial official devaluation.”
“This in turn would exacerbate inflation, which rose to 42.1% (y-o-y) in December 2018, from 31.0% the previous month.” the Monitor goes on.
Fitch Solution sees no short term solution and suggests a continued economic dislocation and elevated political risk.
“A substantial injection of funding from donors and lenders would thus be required in order to back any new currency, but this would require the settlement of some USD2bn of arrears with the World Bank and African Development Bank, and an improvement in overall political stability,” the Africa Monitor says.