Disparities between the bond note and US Dollar has led to shortages of groceries in supermarkets

Rejecting Bond notes? How best to normalise Zim economic situation

Elvis Dzvene: Spiked’s Economy, Banking and Financial Analyst (EBFA)

The Bond note has failed to solve Zimbabwe’s economic woes. It shows adopting local currency at the moment is akin to embracing weapons of mass destruction by the country.

Putting the 1 bond note at par with 1 USD is just a nightmare. Gresham’s law says, “bad money drives away good money.” Bond notes drove away US dollars from circulation. People tended to withhold their US dollar deposits funds and some externalise d it because they felt duped when their US dollars bank balances were simply assumed to be equivalent to bond notes, without any negotiation.

Now as a result of recent fiscal and monetary measures that separated FCAs from RTGS deposits advising that RTGS balances are no longer US dollars and the directive to foreign trucks to pay for fuel in foreign currency. It managed to trigger havoc in the economy due to disparities between bond notes, RTGS balances and US Dollars which led to shortage and birth of sky rocketing prices of basic commodities such as fuel, pharmaceuticals, cooking oil to mention a few. That resulted in a massive rejection of bond notes in preference to returning the US dollar into circulation. At this juncture, the Zimbabwean economy is depending on which currency to proceed with.

The massive rejection of bond notes in preference to the US dollar is an auto prediction of a good move to what is the best. Adoption of US dollar and Rand will tend to stabilise inflationary tendencies, raw materials are likely to become cheaper and affordable. That will boost investors’ confidence thereby definitely attracting FDI, since there will be no more disparities between foreign currency (USD or Rand) and local currency (bond notes).

However, some may begin to ask where the US dollar is and how to normalise the economy because bond note was adopted as a short-term measure as a result of shortage of US dollar.

First and foremost, there is need to sit on the drawing table. Our bills are too exaggerated. For instance, the wage bill for civil servants. According to the previous Civil Service Audit, the government could save as much as $400 million a year if they remove ghost workers, duplications and redundancies. So instead of borrowing that $400 million and pay at an interest we should have avoided that huge debt.

Another issue on wage bill is some exorbitant wages must be cut. Some salaries of government ministries heads need to be revised. Most of them are overpaid. The wages are not reasonably shared as they are supposed. From statistical analysis I made it shows that ¼ of civil servants wages are equivalent to the remaining ¾. Only the few enjoy life at the expense of others. The majority are paid below the poverty datum line.

The only way forward is to pay civil servants wages in US dollars that we borrow after revising the wage bill and deal with corrupt activities. It is also important to note that if we don’t revive and seriously open new industries we are doomed to fail. Even if we adopt use of Pound we will still fail, because of the currency siphoning effect on Zimbabwe import dependency.

Injecting foreign currency to ease the current economic situation will work but it’s a short term measure waiting for another economic recession. As long as our domestic industry is incapable of serving the domestic market and incompetent in exporting large quality volumes of products, we are going nowhere in terms of economic growth.

In a nutshell, it is important to note that it impossible for an unindustrialised country to have a positive influence on monetary measures. Rather, its trading partners will control them. Whichever currency to be adopted, for it to be successful, it demands a functional industry to deal with capital flight.




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