RATING THE ZIMBABWEAN DOLLAR

On 24 June 2019, the Reserve Bank of Zimbabwe (RBZ) announced Statutory Instrument 142 of 2019, putting end to the multi-currency system for local monetary transactions. The new monetary policy was enacted to stabilize the manic ZWL: USD inflation rates, and are part the government’s efforts to secure a loan from the International Monetary Fund (IMF) to help resuscitate the economy. From here, two major questions arise:
  •                         How constitutional is the enactment of the policy

  •                      Will another IMF loan help Zimbabwe’s economy?

How constitutional is the enactment of the policy?
The new policy could be justified under Presidential Powers (Temporary Measures) Act, gazetted by Parliament in March 2019, which essentially gives the executive branch of government the power to make regulations in situations that need to be dealt with ‘urgently’, without consultation of Parliament. These regulations would only be valid for six months. While a petition has been made in the High Court to declare SI 142 null and void, the justification for the declaration could be that stabilisation of the economy is an urgent matter, thus falling within the scope of the Presidential Powers Act, justifying circumvention of Section 134 (f) of the Constitution of Zimbabwe.[1]
It will be interesting to analyse the final judgment in the following months; until then, it has been observed that many local retailers around the country are still accepting payment in foreign currency. Although on paper, the multi-currency system has been limited, the use of the US dollar in exchange for basic goods is likely continue due to the general lack of confidence citizens have in any form of local currency, and the banking system.
Will an IMF  loan help the economy?
Zimbabwe has tremendous internal and external debt. Internally, government debt made up 77.6% of the country’s GDP in 2017- this is government debt owed to domestic service providers (e.g. ZETDC, ZINWA), debt owed for projects undertaken under domestic economic policies such as Command Agriculture and expenditure on special events. External debt in Zimbabwe increased from 11299 USD Million in 2017 to 13134 USD Million in 2018. External debt includes money borrowed from other countries and money owed for services rendered by foreign suppliers (e.g. Eskom).  One of the many ways to jump start the economy would be to increase domestic production of goods and services. But without ‘real currency’, electricity, water and access to basic healthcare, this would be near impossible. An IMF loan would inject foreign currency into the economy, allowing for government to invest in domestic industry and agriculture to boost productivity. As this would not be the first IMF loan Zimbabwe has received, the government needs to show that the ‘new dispensation’ has financial discipline and functional economic institutions to ensure the money used effectively and that the debt can be paid back. The Ministry Finance has decided that one of the best ways to show this would be to institute and stabilize its own currency.
While an injection of foreign currency into the economy seems attractive in the short term, such a loan will not come without strings. Zimbabwe would be required to make adjustment policies, dictated and monitored by the IMF, that would control government spending to ensure that the debt is eventually paid back. Policy reforms would include:
·       Trade liberalization- i.e. charging lower customs duties for goods at the border.
·       Currency devaluation- i.e.  further reducing the value of the domestic currency.
·      Liberalization of domestic markets- i.e. removing price controls and minimum wages of civil servants.
Studies have found that participation in IMF adjustment programs has led to higher inequality within a population, leading to higher levels of poverty, with more people living below the poverty line. Studies have shown that there have been mixed results as far as economic growth and export growth, as well as negative effects on education, health spending and investment. Countries like Pakistan that have received IMF assistance under adjustment programs in the past remain heavily dependent on the organisation for financial assistance and continue to be heavily indebted. However, the biggest impediment to the success of any kind of reforms or economic assistance given to Zimbabwe is the governance crisis characterised by rampant corruption and a lack of financial discipline.
It appears that even with an IMF loan, the state of affairs in the country only stand to worsen for the average citizen. With 90% unemployment, 88% of the population not having access to basic healthcare, and an estimated 72.3% of Zimbabweans living below the poverty line, it is almost paralysing to imagine implementing policies that would make the current state of affairs any worse.  Borrowing more money is not what the economy needs.
Sources
Doris Oberdabernig “Revisiting the effects of IMF Programs on Poverty and Inequality” (2013) World Development Vol 46 pp 113- 142.
                                                                           
About the Writer
Kimberley Nyajeka holds a Bachelor of Arts and a Bachelor of Laws (LLB) from Rhodes University in South Africa. She is currently completing an LLM in International Trade and Investment Law, and Diploma on Advanced Studies in International and Economic Law at The World Trade Institute (University of Bern) in Switzerland. Nyajeka is a feminist, who believes social justice cannot exist separately from economics and is passionate about sustainable economic reform and policy to ensure equality of opportunity and freedom of choice for all individuals in Africa.


[1]Section 136 (f) of the Constitution of the Republic of Zimbabwe states:
  “statutory instruments must be laid before the National Assembly in accordance with Standing Orders and   submitted to the Parliamentary Legal Committee for scrutiny”.