Zimbabwe in Deeper Crisis – Series No. 2

The Crisis in Zimbabwe Coalition is deeply concerned that the country has been beset by structural imbalances, which have hampered economic development for several years. These structural imbalances have resulted in the erosion of income for middle to low income populations (who constitute the majority of citizens) hence incessant and ongoing industrial action in the social services sector, crippling fuel shortages, skyrocketing prices for goods and services. This has further entrenched social inequality with the majority plunged into abject poverty.

We remain worried that the future holds little hope given the policy direction taken by the government and recent statements by the Presidium that turbulent times await citizens in 2019. The ruling party seems already focused on the 2023 election amidst reports of internal elite discohesion – such misplaced priorities will likely not see a resolution of the ongoing crises.

We warn that the structural imbalances in Zimbabwe that include a large trade deficit, recurring current account and budget deficits, and a rising debt can only confirm our fears that the country is already facing the worst economic crisis since the hyperinflation era from 2007 to 2009.

We reiterate our position that though the crisis has been brewing for a couple of years, it was triggered by the fiscal and monetary pronouncements by the Minister of Finance and Reserve Bank Governor in October 2018, when the central bank introduced the 2% Intermediated Transaction Tax on electronic transactions, and compelled banks to create separate foreign currency accounts for real USD deposits. Resultantly there have been price increases of up to 500% for some products, an increase in inflation from 2.5% in June to 5.39% in September 2018, businesses closing down, downscaling or removing goods from shelves due to price uncertainties, foreign currency shortages resulting in government and private companies failing to pay for essential imports such as fuel, medicine and wheat flour. The crisis has also resulted in savings rapidly losing value, basic commodities and essential medicines and social services getting out of reach for a huge section of the population, and a rise in the cost of living that is not matched by increases in wages.

The loss of exchange rate control instruments due to dollarization 2019 has also exacerbated the ongoing currency crisis, since monetary authorities and the government cannot implement significant currency control measures. This has also been made worse by the move by the government to peg the RTGS/bond 1:1 to the USD dollar in 2016, while increasing the supply of RTGS/bond notes without sufficient backing with either USD or gold.

Poor macroeconomic performance, as well as a constrained fiscal space, over the past decades resulted in limited government investment in the social sectors such as health, education, and sanitation, and compromising the provision of basic social services and social protection, and poverty alleviation.

We are worried that the ongoing economic crisis will worsen the socio-economic difficulties already being faced by the vast majority of Zimbabweans. The re-dollarization of the economy will likely continue into the near future, prices of basic commodities will likely be pegged in US Dollar or the South African ZAR, making them out of reach of the majority of the population, and the parallel exchange rate will also continue to fuel inflation. While on the other hand wages will likely not be increased at the same pace as the rise in the cost of living.

The vast majority of the population, who do not have access to forex and whose livelihoods depend on insecure informal economic activities, will be the worst affected by the economic crisis and austerity measures implemented by the government. Shortages of key imports such as essential medicines, fuel, and food staples (e.g. maize and wheat) will cause serious hardships to the majority of the population who already have precarious livelihoods.

In light of these challenges we therefore call on the Government of Zimbabwe to:

  • Immediately review salaries for workers in the civil service and peg a minimum wage that is commensurate with the cost of living to protect employees in the private sector
  • Immediately halt plans to amend the Labour Relations Act and where amendments are effected they should protect the interests of the employee especially given that the state has taken an open market economic trajectory
  • Open up space and avenues for genuine national dialogue on the crisis in Zimbabwe with a view of coming up with collective solutions that involve all stakeholders
  • Develop and implement a short-term stabilisation and recovery plan while exploring a long term social democratic order as an alternative government policy
  • Uphold and respect the sanctity of rights for all citizens and commit to a democratisation roadmap that will further strengthen Zimbabwe’s global positioning as a lucrative destination for both foreign and local investment capital.
  • Uphold and respect the Constitution, rule of law and entrench human rights and rationalised economic order that safeguards the interests and rights of ordinary citizens provided in the Constitution

Source: Crisis in Zimbabwe Coalition

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