Former Finance and Economic Development Minister Patrick Chinamasa.
AS Zimbabwe this week marks 20 years since “Black Friday”, which was caused by politically driven economic imprudence, the southern African country’s economy continues to be afflicted by political and economic heedlessness.
On Tuesday, Zimbabwe marked the 20th anniversary of the “Black Friday”, November 14 1997, the day when the local stock market fell 46 percent and the country’s currency lost 72 percent in value against the US dollar. This event is widely regarded as a precursor of the country’s subsequent economic calamity.
Analysts and commentators have specifically blamed the war veteran’s compensation fund as the major trigger to the economic meltdown associated with the “Black Friday”.
On August 27, 1997, government agreed to pay veterans a tax-free monthly pension and a one-off payment of ZW$50 000 equivalent to US$1 315 at the time. The unbudgeted massive payout, which came after a series of street protests by the war veterans, was not an economically prudent move. Government was blinded by the need to appease the war veterans and its decision lacked consideration of the economic implications.
The 1997, economic heedlessness associated with the war veterans fund has continued to show its face in government decisions over the past 20 years. For example, while Zimbabwe was facing one of its worst economic crisis since independence in 1980 at that time, government was busy spending millions of dollars each month on a war in the Democratic Republic of Congo (DRC). The country’s army was holed up in the DRC jungles from 1998 to 2002. Zimbabwe does not share a common boundary with the DRC, and was under no strategic threat from the war in that country.
The unbudgeted expenditure in the war veteran’s payout and the country’s participation in the war in DRC resulted in cuts in financial aid by multilateral organisations, the World Bank and the International Monetary Fund (IMF). In 1999, government cut ties with the IMF and the World Bank, after the IMF reportedly refused to sanction a £33 million balance of payments loan because of concerns over Zimbabwe’s involvement in the DRC war.
In 2000, the Government of Zimbabwe condoned the illegal and violent invasion of former white-owned commercial farms by not discouraging it. The invasions took place a few days after a new constitution proposal was rejected in a referendum. The proposed constitution would have empowered government to acquire land compulsorily without compensation.
The resultant fast-track land reform programme ushered in a disorderly land distribution exercise which disrupted commercial agriculture in the country and further complicated the economic situation. The ruling party at the time had a sufficiently large majority in Parliament to pass any constitutional amendment to facilitate an orderly land distribution exercise that would not have disrupted the economy. This would, however, have taken time which the ruling party did not have as political tensions were rising with the main opposition political party the Movement for Democratic Change growing in stature.
Since those dark days, the ZANU-PF-led administration’s conduct has been replete with serious fiscal imprudence exhibiting evidence of populism.
In yet another example of government needlessness, in April 2015, the then minister of finance Patrick Chinamasa, announced a two-year suspension of civil servants’ bonuses in a move aimed at meeting the IMF’s demands under the Staff Monitored Programme. Barely a week later, President Robert Mugabe dismissed the minister’s pronouncement. Even though Chinamasa later announced the same two year suspension of civil servants’ bonuses in his September 2016 Mid-Term Fiscal policy Review, the initial reversal of the bonuses suspension points to the same populist economic imprudence that has plagued government administration in Zimbabwe for 20 years.
Analysts and commentators continue to bemoan government’s fiscal imprudence. The recent surge in inflation has been attributed to increased money supply as a result of increasing domestic credit through treasury bills (TBs). Domestic credit recorded an annual increase of 21,10 percent, from $6 978,7 million in May 2016 to $8 451,4 million in May 2017. The growth was largely due to expansion in net credit to Government for the purposes of financing the growing fiscal deficit. A considerable portion of the TBs were issued to finance government recurrent expenditure which again is characteristic of the economic heedlessness seen over the past 20 years.
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