Zimbabwe’s Unsettled Real Time Wreckage

While South African shares brightened on President Ramaphosa’s solid election win for his own term despite a ruling ANC party result barely above 50% as he vowed to stick to a moderate anti-corruption path, Zimbabwe’s MSCI frontier component continued to flail on uncertain cross-border relations and meltdown in the new electronic real-time gross settlement currency. It replaced “bond notes” after elections a year ago installed President Mnangawa as previous autocrat Mugabe’s successor with the decades in power Zanu-PF getting a two-thirds majority. The grouping drew on its traditional rural voter strength, but opposition protests erupted soon after to a harsh crackdown criticized by democratic activists. Another round preceded a planned trip to the World Economic Forum in Switzerland to promote international business opening, and the Finance Minister, formerly the African Development Bank’s chief economist and other officials were forced to cover human rights rather than fiscal and monetary issues. At the gathering the government also intended to discuss a formula for repaying development lenders an estimated $2.5 billion in arrears and extend an informal staff monitored program with the IMF, with the latter agreed in March. On assuming office the RTGS/US dollar rate was at parity, and months later it was devalued to 2.5 and in subsequent parallel trading fell 20% in a week. Despite commercial borrowing from a regional hedge fund and the Cairo-based African Export-Import Bank, the fuel import official exchange level could no longer be maintained as pump prices and shortages spiked. Depreciation pass through brought inflation to 65% as GDP is due to contract 2-3% after original predictions of growth at that clip. Agriculture was also devastated by drought followed by a tropical cyclone, undermining planned tighter fiscal policy to halve the 7% deficit in 2018. A 2% financial transaction tax has generated revenue, as the treasury is trying not to tap the central bank to bridge the gap.

A half- dozen state-owned enterprises could be sold soon to stem losses, and the new one-stop foreign investment promotion agency intends to feature the candidates in its pitch. As to other industries mining is on hold after a project conference fizzled out for lack of detailed financial and operating terms, while cheap tourism around Victoria Falls resorts has begun to revive. Tobacco is in long-term decline with global anti-smoking movements and electronic substitutes, and potential joint venture partners remain confused about “indigenization” legislation expecting local control. Civil service payrolls and grain subsidies will be cut, and the state asset management unit is to be restructured for competitive and transparent deals. Commercial banks, insurers and pension funds are to buy T-bills, and the last pool will shift from pay as you go to a defined contribution scheme over time with cities and provinces able to launch their own systems. Reserve targeting will be the core monetary lever, with emphasis on deepening the interbank foreign exchange market if the RTGS$ is to last. With the currency adjustment banks may need recapitalization amid already swollen bad loan portfolios. On private sector development more broadly the Mnangawa administration is committed to improving the bottom tier ranking in the World Bank’s Doing Business, including on basic electricity supply as a real time infrastructure bottleneck.

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