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Hope, Skepticism on Zimbabwe Finance Minister Mthuli Ncube's Economic Revival Plans

FILE: President Mnangagwa (right) talks to Zimbabwe’s new Finance Minister Mthuli Ncube at the State House in Harare, Sept. 10, 2018.

Professor Mthuli Ncube, a visiting Professor at the University of Oxford and holder of a PhD in Economics (Mathematical Finance) from Cambridge University, has taken his talents to his troubled nation, Zimbabwe, where he will serve as Minister of Finance.

Ncube faces a huge task of trying to revive what some economists describe as a comatose economy.

Harare’s economic crisis includes cash shortages, rising prices of basic commodities, mass unemployment, lack of foreign direct investment and a shattered infrastructure. A recent report by the Zimbabwe National Statistics Agency placed the country’s inflation rate at 4.83% year-on-year in August, up from 4.29% in the previous month of 2018 – Zimbabwe’s highest inflation rate since December 2011.

The nation is also battling a cholera and typhoid outbreak, which, according to a situational report by the World Health Organization (WHO) threatens the lives of two-million people who are prone to co-infection.

The country, which relies mostly on agriculture, is facing another climate-induced drought as weather experts predict an El Nino effect in the 2018/19 season in southern Africa.

All the above challenges have not escaped Prof. Ncube who acknowledged to VOA soon after his swearing in at State House recently, that his task is tough.

“It's enormous, it is Herculean. I am very energetic and I am very up to the task.”

On the controversial issue of currency – Zimbabwe currently has a multi-currency system which President Emmerson Mnangagwa has said the country will keep, Prof. Ncube also told the state-leaning Sunday Mail newspaper that he is “very clear that there have to be currency reforms and the (current) currency approach is not working.”

He added, “In doing so, there are three choices that I will explore and pursue with urgency: One, adopt the US dollar only and remove the bond notes from circulation through a demonetization process and also liberalize exchange controls. Two, adopt the (South African) Rand by negotiating to join the Rand Monetary Area, and this will close the gap in loss of competitiveness against our largest trading partner, South Africa. Three, adopt a new Zim (Zimbabwe) dollar, and here one needs to be clear that it has to be backed by adequate foreign reserves and macroeconomic conditions for its stability.”


But leading world expert on measuring and topping hyperinflation, and Professor of Applied Economics at the Johns Hopkins University in USA, Steve Hanke, said Ncube is destined to fail if Harare does not halt its quasi-fiscal activities.

“It’s like a cancer, and no one exactly knows how to cure the patient, they need a strong dose of chemotherapy,” Hanke said referring to the common treatment used to treat cancer.

Zimbabwe abandoned its own currency in 2009 amid hyperinflation that reached an annual rate of 231, 000, 000%. Prof. Hanke said though, “In 2008, Zimbabwe suffered the second most severe episode of hyperinflation in recorded history. Zimbabwe’s annual inflation rate peaked in November 2008, reaching 89.7 sextillion (10^21) %.” Hungary remains the top nation in a group Hanke calls “rogues’ gallery of countries that have experienced hyperinflation”

Since 2009 Zimbabwe had relied on a basket of foreign currencies, in particular United States dollars, South African Rand and the Botswana Pula.

But in November 2016 the Reserve Bank of Zimbabwe (RBZ) announced that it was introducing a quasi-currency called “bond notes”.

This failure to fully embrace dollarization is what Prof Hanke said led to the current crisis. “Zimbabwe has already de-dollarized in the sense that the new Zim dollar (bond notes) is a quasi-currency. When they started issuing bank notes and quasi money, they essentially abandoned dollarization and it was a complete disaster, they had a second hyperinflation in 2017 that I have measured and written about, that was in November last year and that led to the coup d’état against President (Robert) Mugabe. Going back to the Zimbabwe dollar would probably be more of a disaster.”

Is Central Bank Chief Rejecting Expert Advice?

Prof Hanke added that Zimbabwe is the only country in the world that is not successfully dollarized, “because they started issuing quasi currencies and at the time I recommended strongly against these.”

Hanke said dollarization worked perfectly under the five-year Government of National Unity from 2009 – 2013, that saw the opposition Movement for Democratic Change (MDC) party led by the late Morgan Tsvangirai, join the ruling Zanu-PF party and government, then led by former President Robert Mugabe.

Hanke credited the then MDC Finance Minister Tendai Biti for improving the situation, because he said “Biti was following the rules and the rules are: you can’t issue quasi money.”

Prof. Hanke says Harare has tough decisions to make. “They must unwind the mess they have gotten themselves into and that will require technical expertise that I do not think they have in Zimbabwe. I know what to do, but I don’t think they know how to do it. Given their record it’s just a record of total incompetence and ignoring basic economic and finance principles. They are really on another planet.”

He likened Harare to the Soviet Union at the time of its collapse saying it has no capacity to pay off its huge debts. Harare is saddled with an $18 billion debt and arrears totaling $1, 8 billion. Zimbabwe owed the International Monetary Fund (IMF), World Bank (WB) and the African Development Bank (AfDB) $1.8 billion in arrears, making the country ineligible for cheap funding. It has since cleared the IMF’s US$110 million arrears, but still owes the WB and AfDB.

Taking issue with Hanke’s assessment of Zimbabwe’s economic standing, the governor of the Reserve Bank of Zimbabwe (RBZ) John Mangudya that his surrogate currency is working as intended. “We are very happy that the bond note has managed to incentivize exporters, and exports have gone up by more than 36% and this is why we still have foreign currency to import fuel.”


The central bank chief further argued that the country’s problems cannot be blamed on the bond notes.

“Zimbabwe’s challenge is not about the currency, it is about fiscal imbalances that is what is causing an increase in money supply. People are asking the wrong questions, it’s not about the currency but about the economy which is not performing,” Mangudya said.

He added that there was need to expand and diversify the economy to help ease the current cash crunch. “We are not creating enough foreign currency for domestic use. We are the only country in the world that is using other people’s currency but we have no access to foreign currency due to international isolation and sanctions.”

Zimbabwe’s national debt now stands at $18.4 billion, according to Zimbabwe’s fact checking organization, Zimfact. However, according to Zimfact, the foreign debt stock only refers to the government and parastatals, and excludes private sector foreign debt, which is estimated at $2.5 billion. That puts the country’s foreign debt at a minimum $US10 billion.

Still, the figure does not include the $1.5 billion borrowing from the Africa Import and Export Bank (Afreximbank) that was announced by the central bank chief in the January monetary policy statement. This increases the country’s foreign debt stock to at least $11.5 billion. The foreign debt is owed to institutions such as Paris Club, World Bank, AfDB, and Afreximbank.

Statistics from government and independent researchers indicate that the country’s domestic debt increased from $US4 billion at end of 2016 to $US6-billion at the end of $2017, and is seen rising further to $US6.7 billion this year. This is on the back of increased deficit financing through issuance of treasury bills and a growing government overdraft at the RBZ that reached US$1 billion.


But Zimbabwe received a major boost recently when outgoing British ambassador to Harare, Catriona Laing, said the former colonial power will support Harare to get on an interim IMF staff program, so as to help the country quickly clear its foreign $US 1-billion arrears.

Analysts weighing in on Prof. Ncube’s ability to effectively reverse the country’s economy, expressed skepticism, given the many obstacles in the new finance minister’s way.

Former Finance Minister Tendai Biti described Ncube’s appointment as “over-hyped” adding that “Zanu-PF has no decent people amongst them and Mthuli (Ncube) is descent,” said Biti.

He however questioned Ncube’s ability to navigate the political quagmire given his lack of political experience.

“This job requires more than technical ability. This job requires more than academic knowledge. You have to have political dexterity to maneuver the murky chambers of Zanu-PF corridors. Most importantly you have to have the strength of character to say no to Zanu-PF because Zanu-PF has an insatiable appetite for expenditure.”

In Biti’s estimation, “He (Ncube) is going to fail, and when he fails he will walk away, if he doesn’t walk away they will co-opt him, because joining Zanu-PF in the manner he has done, it’s like riding on the back of a hyena, you cannot get off it because it will eat you. He has set himself up for failure and is going to understand shock lessons about the intricacies and inelasticity of Zanu-PF corruption.”

This point was validated by Zanu-PF spokesman Simon Khaya Moyo who appeared to hint at possible interference when he released a statement after the cabinet appointments saying “the new cabinet ministers of state and deputy ministers must always bear in mind that Government is a product of the party. They must always take that into cognizance as a cardinal principle.”

Former Finance Minister Dr. Simba Makoni said fixing Zimbabwe’s economy required an all hands on deck approach, and that counting on one person to fix it will not succeed.

“Getting the country’s problems solved cannot be a one person job,” stressed Makoni. “The major difficulty we have had in this country is that we have not had a team that has pulled together. Just like in sports and other arears, if one member of the team is very good and the rest of the team isn’t that team won’t win. What Mthuli Ncube needs to do as part of that team, assuming that he has the agreement and consent and contribution participation of his colleagues in cabinet including the president, is not new. We have had many turn around strategies, many economic blue prints.”


Echoing what Ncube himself had said in the past, Makoni noted that “we must get the country’s economy working again, agriculture producing, mines producing, industries producing.”

Makoni identified the government as the major culprit in Zimbabwe’s economic demise.

“We must contain government spending that is the biggest albatross around our necks. We are spending money that we don’t have. And we are spending it on the wrong things and Mnangagwa is no different in that respect from (former president) Robert Mugabe. We can see already in the ten months he has been president of the country. He is continuing to spend big money on the wrong things and there is nothing Mthuli is going to do about that single-handedly until he convinces Mnangagwa that he must stop spending frivolously to please a select few people. So, get the economy running and this means macroeconomic stability, this means fiscal discipline, this means monetary predictability, including what we do about the currency.”

Dr. Makoni says Prof. Ncube is hitting the right note. “He is right that we must have one currency in the economy and taking the experience of the so-called multi-currency system it would be rational, it would be practical to say our currency is going to be the US dollar period or our currency is going to be the South African rand, period. Having said that, then he must instill sufficient discipline between the ministry of finance and the Reserve Bank of Zimbabwe not to print paper that we issue out on the vendors’ market.”

University of Zimbabwe Professor, Tony Hawkins, agreed that government bears the brunt of the responsibility of the country’s poor economy, and should also heed to calls by the WB and IMF to cut on salaries which the financial institutions said have bloated the wage bill, which currently accounts for 90% of government’s budget.

“The huge pay increases which they gave to the civil servants from the first of July which have not been factored into the budget yet, that’s the real challenge and also if you look at the budget figures an awful lot of money is shown as what we call transfers without any explanation and those transfers are presumably for subsidies of one kind or another such as command agriculture, such huge subsidies for maize … We are paying twice the world price for maize, huge subsidies for wheat, we are paying more than 40% above the world wheat prices. And there gotta be pretty severe expenditure cuts. And Dr. Ncube might face resistance from some of his cabinet colleagues.”


Contrary to belief that Ncube will face internal opposition from the government and party, chief economist for the Labor and Economic Development Research Institute of Zimbabwe, Dr. Prosper Chitambara, said Zanu-PF is desperate for success and will not interfere with Prof. Ncube’s economic revival plans.

“There is a lot of pressure on the part of government itself to deliver quick wins, to deliver quick economic pay offs or dividends. The state of the economy itself is very palace. There is a lot of pressure from the citizens that change has to come. Positive changes have to take place. And I am sure that would drive politicians probably to do the right thing, so we are just cautiously optimistic that he will be given the leeway and the freedom to implement the right kind of economic prescription that are necessary to turn around the fortunes of the economy.”

Dr. Chitambara, said Prof. Ncube is the right man for the job.

“He is someone who is credible, a professional. But what has to be done is to begin real work," he said. "To roll up his sleeves and begin to implement key fiscal policies that will bring back confidence into the economy. Reigning down on recurrent expenditure. In general, what we need are fiscal consolidation reforms that curtail drastically recurrent government expenditure."


On solving the cash crisis, Prof. Hawkins says there are no easy choices. “He suggested three things, he wants to get rid of the bond notes and he said one way of doing will be repaying them with the U.S dollars, and that means he will have to find $400 million to do that which he hasn’t got, secondly he has talked about the rand, but there are problems with that not least that it means you have no autonomy in your policy because you have to do what South Africans are doing and I don’t think people would like that very much and the third option he talked about and he was talking about yesterday, he has changed his position quite quickly saying well we can go back to a local currency.

“Well if you want to go to the local currency you might as well do it now, it would not make sense to go to the rand for years, and say we are going back to a local currency. They might as well go the whole hog and do it now.”

Professor Gift Mugano, a trade economist, said Prof. Ncube is an inspired choice for President Mnangagwa.

“We need to thank President Mnangagwa for listening to our desire and calls to appoint a minister who knows economics in the ministry of finance. Ncube is a seasoned economist. He understands what needs to be done.”

Mugano points at currency reforms, an area Ncube has prioritized, as key in reviving the fortunes of the country.

“He wants to undertake currency reforms and one of the things he needs to do is it to remove the bond notes. In 2016 we said Mangudya made a mistake, and Mangudya was very arrogant and we are very happy because we have been vindicated. The bond has been stopping fresh capital from coming to Zimbabwe because there were rumors and concerns that government might want to print more money hiding behind the bond notes.


“There was no one who had confidence in banking money in this country as long as the bond note is there, there were fears government might go into over drive printing money, and people did not want to risk their hard currency being substituted by the bond note.”

On what currency to use, Prof. Mugano used a Chinese adage saying it doesn't matter whether the cat is black or white, as long as it catches mice.

“For me it’s neither here nor there, which either currency we go for (rand or dollar) which ever currency which we will go for, we should have the right fundamentals. We need to deal with the issue of production.”

Harare’s economic output has halved since 2000 and independent economists claim that unemployment stands at more than 90% with the government as the country's only reliable employer. But the Zimbabwe National Statistics Agency puts the unemployment rate at 11.3% as it includes those in the informal sector.

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