Zimbabwe: a country bonded in crisis

Zimbabweans are bracing themselves for the imminent introduction of bond notes. But how did the country get in this position?


Police patrolled the streets of Harare, Zimbabwe, throughout August in an attempt to disperse hundreds of demonstrators that took to the streets. Teargas and water cannons have been used to discourage campaigners – with varying results.

Protestors gathered in reaction to the planned introduction of bond notes in Zimbabwe – a local currency which will have an equivalent value to the US dollar and is due to circulate from November. Around the country, peaceful protesters appealed to the government to reconsider the new tender, which they believe signals a return to the defunct Zimbabwe dollar, pulled from circulation in 2009 following a period of hyperinflation.

Unbudgeted compensation payouts to former 1970s liberation fighters led to the currency losing more than two-thirds of its value on 11th November 1997. Black Friday, as the day came to be known, along with Zimbabwe’s involvement in the Second Congo War in 1998 and the hostile re-acquisition of white-owned commercial farms at the end of the 1990s, marked the beginning of the end for the Zimbabwe dollar.

In 2009 Zimbabwe turned to a multiple currency system, using the US dollar and the South African rand, among several other currencies. Now the addition of the bond note has triggered fears the government could try to re-introduce the obsolete currency.

While the government insists the new currency will ease liquidity pressures and stimulate the economy, public anxiety over the new notes has heightened fears Zimbabwe could be heading towards another economic crisis. From a high of 7% in 2012, economic growth has slowed to less than 1.5% in 2016.

In August the Zimbabwe Stock Exchange (ZSE) recorded its lowest monthly turnover in seven years of $7m, a strong sign Zimbabwe could be sliding closer to recession. The new notes will be backed by a $200m loan facility from Afrexim Bank, which was agreed in May of this year.

According to Reserve Bank Governor, John Mangudya, the cost of the Afrexim facility will be paid for through gold exports and the main thrust of the new tender is to serve as an incentive for exporters who could get a 2.5% to 5% bonus on export payments from the Reserve Bank. Desperate for help, after 17 years of strained relations, Zimbabwe is back in funding talks with the International Monetary Fund (IMF) and World Bank.

The IMF has expressed optimism an arrears clearance strategy for Zimbabwe’s $1.8bn debt could be accepted by the end of the year, but the international lender maintains President Robert Mugabe’s government must show commitment to a range of fiscal reforms that include a viable debt clearance strategy and internal policy measures such as good governance, improving the business environment and cutting the civil service wage bill which consumes more than 80% of its $4bn budget.

Concrete steps towards reform are yet to be seen and Gerry Rice, director of the communication department of the IMF, stressed at a press briefing in Washington back in July “we are still far from a program deal with Zimbabwe”.

Gugulethu Ncube, a member of Tajamuka, the activist group leading some of the protests against bond notes, castigates the government’s decision: “We are in total disagreement with the introduction of bond notes because it’s just a way to flit away the few [US] dollars remaining in our country to be pocketed by the elite. We are already suffering as a result of their corruption and giving us bond notes as money is like bringing back the Zimbabwe dollar and it will only worsen our economy and make life much harder.”

“Fictitious money”

Legal commentators have also dismissed the new tender as “fictitious money” and in August, Zimbabwe People First (ZPF), a recently formed political party led by ousted former vice president Joice Mujuru, approached the High Court seeking to have the bond notes declared unconstitutional. Fadzayi Mahere, a local advocate, argues that the decision to issue the notes by the Reserve Bank of Zimbabwe has not been given sufficient consideration by parliament.

“The proposed conduct of the government is unfair and it is illegal in terms of the Constitution and people are entitled to raise questions over the use of bond notes as citizens have a right to [government] conduct that is lawful and fair. “[Moreover], it’s worrying that the details of the agreement with Afrexim Bank are not known, what happens if Zimbabwe defaults and it can’t pay?” she says.

Liquidity crisis

Mduduzi Ncube, Matabeleland regional manager of the Zimbabwe National Chamber of Commerce (ZNCC), a local business lobbying group, thinks that while the benefits of the new notes remain to be seen, the measure does not address the root cause of the current crisis.

“There is a lot of public uncertainty, but we are yet to see what impact the bond notes will have on the economy. However, bond notes are only one remedy for a bigger problem and what’s needed is to attend to the liquidity crisis affecting industry,” he says.

Tendai Marima

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