Zimbabwe’s new Minister of Finance, the primarily apolitical Mthuli Ncube, faces an enormous and contradictory challenge. He has to win foreign confidence to attract investment so as to halt the death spiral of an economy burdened by enormous overseas debt. And he must do it at the very moment factions of the ruling Zimbabwe African National Union-Patriotic Front (ZANU-PF) compete to appropriate crucial sectors of the flailing economy. So far, he has depended on promises and warm words whose effect is still under consideration.

According to a recent government of Zimbabwe strategy paper, the external debt is US$7.4 billion. Yet the more worrying figure is domestic debt, which ballooned from $275.8 million in 2012 to $9.5bn in 2018 (official government figures), through the issuing of treasury bills and central bank overdrafts. As the treasury bills were not backed by US dollars, the government has been unable to pay them back.

Leading Zimbabwean businesses are stuck because they were coerced into purchasing treasury bills which remain unpaid despite maturing as long as five years ago.

Throughout the year, the exchange rate between the electronic money in the RTGS (real-time gross settlement) system and US dollar cash has been climbing, as has the exchange rate between bond notes and US dollar cash. This generated anxiety, as RTGS payments should represent US dollars in citizens’ bank accounts, and former Finance Minister Patrick Chinamasa had promised Zimbabweans that bond notes would always be exactly on a par with the US dollar in their bank accounts.

Cognisant that one of his first jobs as Finance Minister must be to stabilise the spiralling economy, Ncube ordered the banks on 1 October to separate clients’ bank accounts into accounts backed by hard cash and those backed by RTGS.

Panicked Zimbabweans, believing that their savings were on the brink of losing all value, rushed to empty their accounts. Supermarkets took advantage of the all-round fear to raise prices sharply.

Ncube’s other big announcement, on 1 November, was that all electronic payments would attract a 2% tax. Though increasing government revenue is a priority, this tax was wildly unpopular, as it makes already high prices unaffordable, and because Zimbabweans rely heavily on electronic payments (either mobile money or swipe) in this cash-starved economy.

Obert Mpofu, a veteran minister under Robert Mugabe who was shuffled out of cabinet along with other older factionalists to make room for the new ‘technocrats’ such as Ncube, took advantage of the disgruntlement to criticise the finance minister for not seeking the party’s permission. Although Ncube successfully passed and implemented the bill in spite of Mpofu, this incident was a reminder of his lack of political capital, regardless of how warm an international welcome he may have had.

There is also an overall fiscal deficit of $2.3bn. This is primarily driven by ‘an unbudgeted review of salaries’ for the still bloated civil service which is ‘projected to require around $500m’, as well as $650m for ‘crop input support’ and $475m for grain procurement under the Command Agriculture programme (AC Vol 58 No 4, ZANU-PF digs for votes).

The government’s failure to reduce the size of the civil service has been a source of contention with international financial institutions for a number of years. This cost was exacerbated by unbudgeted pre-election bonuses to ensure the loyalty of key security services. Command Agriculture is also a contentious cost, as it is a source of both income and rural control for the military, rather than an efficient means of producing food.

Ncube will need to address the fiscal deficit in the coming year, yet the most expensive sources of overspending are overtly political.

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