Fears of new financial crisis in Zimbabwe

2014-01-31 08:35

After years of relative calm, Zimbabweans are bracing for a renewed economic and financial crisis that could see their country become a silent victim of the emerging markets sell-off.

Dollarisation means inflation is under control – to the relief of all who suffered years of hyperinflation – but joblessness remains endemic and the Zimbabwe Reserve Bank has warned that growth is slowing.

Businesses operate with patchy energy, transport and communications infrastructure, and are lucky to operate at all.

A “severe and persistent liquidity crunch” – in the words of the central bank – means many cannot access credit needed to start up, expand or keep going.

Companies are laying off about 300 people every week, according to the main trade union federation.

Countrywide, these troubles translate to a current account deficit expected to hit 22% of GDP this year, meaning more than a fifth of all wealth produced this year with leave the country.

Most of that deficit is caused by Zimbabwe’s reliance on imports from neighbouring countries for even the most basic goods.

Investors report being concerned by indigenisation laws, which require that black Zimbabweans own controlling stakes in companies.

Business groups are calling for reform.

“The government should start working on investment policies because we are lacking investor confidence to attract long-term investment. We need significant investment and more exports to address the liquidity challenges,” said Zimbabwe National Chamber of Commerce president Davison Norupiri.

The banking sector is likely to be at the epicentre of any shock.

Already, long queues are becoming a regular feature at branches of those banks known to be struggling, despite government protestations.

Zimbabwe’s central bank had asked banks to have at least $100 million in deposits by June this year, but has pushed back that deadline until December 31 2020.

The central bank itself is struggling to recapitalise a lender of last resort facility of between $150 million and $200 million, but has vowed to do so by March this year.

There are doubts about where a larger safety net would come from. And with a $6.1 billion external debt, the bond market is not a viable option.

Hopes to boost national coffers with revenue from the diamond mines appear to be fading as little cash makes its way to the government.

Diamond miners claim the mineral deposits are running out.

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