Zimbabwe’s fragile economic situation is lurching towards fresh depths amid indications that United States dollar denominations are disappearing from circulation. The development has triggered speculation of a conspiracy to wipe out US dollar notes to pave way for the planned introduction of bond notes, a local currency by the government. Last week Zimbabwe cleared its 15-year-old financial arrears with the International Monetary Fund, a first step towards a new IMF loan program for the cash-starved country.
HARARE, ZIMBABWE (REUTERS) – Thirty five-year-old Charles Saki has been a bank teller for five years. With his income he has been able to sustain his two children and contribute to running the home with his wife.
But in the last few months, money has been difficult to access and does much less than it used to, he says.
Zimbabwe is facing its worst financial crisis since it dumped its own currency in 2009 as hyperinflation soared out of control, and adopted the U.S. dollar.
“When I started to work it was in 2010, things were okay. The US dollar had just been introduced, the multi currency regime and everything changed overnight from the situation that we had known before and things were available in the shops, people had jobs and business was booming,” said Saki.
Analysts say the planned introduction of local bank notes had brought uncertainty and worsened cash shortages as consumers try and protect themselves by holding on to their dollars.
“Now Zimbabweans have terrible memories about having a local currency, going back to 2008 at the height of our hyperinflation crisis so this basically reflects the declining confidence in the economy,” said Nelson Banya, an financial and business analyst.
The Central bank chief says the local currency in the form of ‘bond notes’ would be released in November after the government passes a law to back them.
The new notes in small dollar denominations are intended to address cash shortages that have fuelled recent protests against the government, but have instead caused anxiety and panic as queues of people wait to withdraw limited amounts of cash.
“I have been here since 4am, my children are almost starving, there is no food at home and the bank is saying there is no money,” said Faith Dheri, a resident of Harare.
Zimbabwe cleared 15-year-old financial arrears with the International Monetary Fund last week in what is seen as a first step towards a new IMF loan program for the cash-starved country.
Zimbabwe settled obligations of about 108 million US dollars by transferring part of its cash holdings at the IMF to the Fund’s Poverty Reduction and Growth Trust. Zimbabwe had been in continuous arrears since 2001.
However, a new IMF loan program for Zimbabwe cannot be considered until the country clears more than $1 billion in World Bank arrears and another $600 million-plus owed to the African Development Bank.
Analyst Alphonce Mbizwo says the pay off will not change much for Zimbabwe without broad financial reforms.
“That in itself means nothing or in isolation it doesn’t mean anything because Zimbabwe still has to pay off the World Bank over a billion dollars and the African Development Bank over 600 million dollars. So the payment to IMF cannot be taken in isolation it has to be encompassing… it has to be accompanied by other payments to other MFI’s, those and also a comprehensive reform package,” said Mbizwo.
Without balance of payments support or funding from its traditional Western backers, Harare lives from hand to mouth, spending 82 percent of its national budget on public sector salaries.