Let’s assume that Zimbabweans will one morning this month wake up to the clatter of government helicopters, flying over cities and villages while spraying bills of cash in a generous and random fashion never seen before in the country’s history.
Well, wouldn’t that be an amazing gift, a rare Christmas gift to a nation that has for years been deliberately forced to languish in dire economic misery by its political leaders?
What better way to arm cash-strapped consumers with disposable income and stimulate a severely illiquid and deflationary economy than to dole out easy money!
As authorities prepare to inject local US dollar “bond currency” into the economy, perceptions are growing that the government, through the central bank and treasury, wants to hand out a cash freebie that will only later turn out to be an electioneering scam.
Hence, the plan has met a firestorm of public outcry and stiff resistance from sections of the business community, as the country braces for polls in 2018.
There’s also no rejoicing for the "helicopter money" primarily because analysts fear the government has just begun embarking on yet another one of the self-destructive money-printing programmes which in the past only led to hyperinflation, sending the economy into a tailspin.
Some investors are already selling off their stocks in the main bourse as uncertainty and fears grow about the likely impact of this stopgap measure on the economy.
Central bank governor John Mangudya is battling to convince people that he isn’t Krampus, the bad Santa. Bond notes aren’t “helicopter money” and their quantity won’t be large enough to stoke abnormal price increases as some would have us believe, he implies.
Helicopter money refers, metaphorically, to an imaginary and unconventional measure meant to jumpstart the economy during deflationary periods. It involves the printing of large sums of money and dispensing them to the public in order to stimulate the economy.
However, with revenues depleting and sources of foreign currency fast drying up, there’s no way that the government will be able to raise large amounts of forex needed to support the printing of significant quantities of money that could stimulate economic turnaround.
The chances of getting loans from major international lenders are also remote, with both the IMF and World Bank playing hard ball as they call for wide-sweeping reforms before help can be offered.
Even if the new measures were like the quantitative easing (QE) programmes undertaken by some central banks since the 2008 financial crisis,that would still require extensive purchases of assets from financial markets.
Zimbabwe doesn’t have sufficient foreign exchange reserve ammunition to carry out such a procedure, unless it wants to revert to the pre-2009 way of doing things, printing money at random and stoking hyperinflation.
The greenback has been gradually disappearing since Robert Mugabe claimed re-election as president in the 2013 elections, leading to a run on the banks that created severe cash shortages and worsened the existing liquidity crunch.
Having people sleeping outside banks just to withdraw a meagre US$20 surely speaks volumes about the enormity of the crisis.
As usual, authorities have been quick to lay the blame on others for the mess that apparently originates in the failures of the current government and its leader.
Foreign companies have been pinpointed for smuggling the greenback out of the country. It is for this reason that plans for the bond notes eventually came up, they say.
It hasn’t been easy to carry out open market operations and use money supply as a tool to rein in inflation and influence interest rates since Zimbabwe put its currency on hold, in favour of a multi-foreign currency system led by the US dollar.
Although bond notes would be printed abroad, backed by a US$200 million facility arranged with an international bank and deriving their par value from it, the central bank has an impression that it has printed them.
Frankly, a mere US$200 million won’t be sufficient to cause any changes to inflation or interest rates. But the concerns that still linger over the bond notes are genuine, especially where the question of whether our government can be trusted comes into play.
Policymakers suggest they have put together a more effective and indirect way of controlling the needless outflow of the US dollar, rather than enforce radical capital control methods, as the US dollar-denominated currency can't be used as legal tender outside the country's borders.
Others in the corporate world are calling for the blanket adoption of the South African rand as the dominant official currency, rather than the scarce US dollars. This is because Zimbabwe's biggest trading partner is South Africa, which could make it easier to deal with balance of payments problems.
But the concerns and resistance to bond notes are genuine in that the Zimbabwean government can't be trusted with issues to do with the printing of money, as history is the guide.
Nobody knows how it plans to finance its unsustainable budget deficit, which the treasury in September said could spiral to US$1 billion. Luckily, cash is the means by which it has mostly been financing its programmes.
Now, after exhausting all its efforts to persuade major lenders to offer it loans, and as exports revenues and foreign investment have not been forthcoming, there’s no doubt that Mugabe will once again try other bizarre methods to finance his political campaign projects ahead of the 2018 elections.
Printing and dispensing bond notes without any form of forex support to cover for imports and derive value from could be one of them, so people who resist the money could as well be in the right.
