By Revesai Mavetera
Honorable Tendai Biti, a prominent figure from the Citizens Coalition for Change (CCC) party and former Finance Minister of Zimbabwe, recently discussed the causes of the economic crisis in Zimbabwe and proposed recommendations to address the situation. Honourable Biti had the opportunity to engage in dialogue with renowned economist Professor Tony Hawkins at the Africa CEO Roundtable, where they shared their insights.
According to Biti, Zimbabwe has experienced a recurring pattern of fiscal implosion, with the most recent crisis occurring in May 2023. He argues that these implosions have become institutionalized, indicating that Zimbabwe is trapped in a state of permanent crises. The root cause of these fiscal implosions, as Biti suggests, lies in a regime that consistently exceeds its financial means. The expansionary fiscal policies adopted by the government have led to substantial budget deficits, which are then monetized through the printing of money.
Biti pointes significant events in Zimbabwe’s history that illustrate the consequences of such policies. For instance, the collapse of the Zimbabwe dollar by 70% on Black Friday, November 14, 1997, was a result of unplanned payouts to war veterans. Additionally, the meltdown between 2004 and 2008 was triggered by excessive money printing to cover fiscal obligations.
Professor Tony Hawkins contributed to the discussion by noting that broad money in Zimbabwe has grown by 12,000% in just four years under the leadership of Mthuli. Furthermore, he states that from March 2022 to May 2023, broad money increased by 800%. The excessive printing of money leads to a situation where there is an oversupply of money in relation to the available goods, resulting in inflation and shortages. This inflation erodes the value of pensions and wages, plunging citizens into poverty. Hawkins emphasizes that the choice of currency, whether it be the US dollar, yen, euro, or pound, becomes irrelevant as long as the government continues to live beyond its means. Zimbabwe, he asserts, will continue to cycle through currencies without addressing the fundamental issue of fiscal discipline.
In light of these challenges, Biti called for short-term dollarization as a temporary solution. However, he emphasizes that fundamental reforms are necessary to address the underlying fiscal indiscipline. He proposes several key measures to achieve fiscal consolidation:
1) Amending the Public Finance Management Act and the Public Debt Management Act to impose a limit of 3% on budget deficits.
2) Holding ministers criminally liable for exceeding borrowing and deficit thresholds.
3) Amending the Reserve Bank Act to repeal provisions that allow the government to borrow from the Central Bank.
4) Implementing greater financial reporting obligations and parliamentary scrutiny.
5) Shifting government accounting from accrual to cash accounting.
6) Replacing the Reserve Bank of Zimbabwe (RBZ) with a Currency Board.
