World Bank speaks on Zim cash crisis

By The Standard | Jul. 2, 2017

Zimbabwe has been battling cash shortages since 2015 and every measure put in place by the Reserve Bank of Zimbabwe (RBZ), including the controversial bond notes has failed to stem the crisis.

BY TATIRA ZWINOIRA

World Bank country director Paul Noumba Um

Snaking bank queues have become a common feature around the country’s urban centres and the government appears clueless on what has to be done to end the cash shortages.

Our reporter Tatira Zwinoira (TZ) spoke to the new World Bank country director (Botswana, Lesotho, Namibia, South Africa, Swaziland, Zambia and Zimbabwe) Paul Noumba Um (PU) who believes the solution lies in fiscal discipline from the government.

Below are excerpts of the interview.

TZ: What is the World Bank’s take on the cash shortages in Zimbabwe?

PU: I think we have been aware of it (cash shortages) for a while. We have been monitoring the situation closely. I think the issue at stake has many dimensions.

What the users see is a liquidity crisis and that has several causes and reversing it may also take more time. I think fiscal discipline can help.

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I would probably step back and say to avert such situations you need to have a prudential management in your fiscus.

When you have the spending level of a given year exceeding the resources available by 10% (for example) you create issues like that.

This also creates issues with the banking sector because the banking sector has been called on to finance the needs of the government. What has happened is that the private sector does not have access to the same resources that the public sector would have used to finance investment which the economy needs to expand further.

So, it is really around fiscal discipline. But, how you get fiscal discipline is a little bit more complicated because the reasons which are driving the fiscal off track are usually also fundamentally linked to priority needs, either political or on the social front, and that is the reason why you need to have a comprehensive view.

What we are doing as a partner to government is sitting down with them and giving advice.

That is what our colleagues from the International Monetary Fund are doing.

TZ: What is your advice on market indiscipline? How do you incentivise people to start circulating money instead of keeping it at home?

PU: It is about creating trust. Why do I need to keep cash at home? It is because I am afraid that tomorrow I may need the cash and that I may not get it.

That is why if I have excess cash I will keep it at home so that if I need it tomorrow I will use it.

So overall, it is an issue of creating trust in the economy and that is the responsibility of the government which also should be talking to the people, but more or less acting.

The central bank, government and the business community need to be talking about it so that they can create that trust so that people do not behave like that.

TZ: There has been talk about adopting the rand because bond notes seem to have been abused. What is your take on this?

PU: The World Bank does not really have a take on it. It is really a sovereign decision of the government. You have many countries of the world which are using dollars (United States dollars) as their currency, if the government decided to use the rand it would probably fit well with the economy of Zimbabwe which is probably connected and linked to the economy of South Africa.

It would probably give them more flexibility in managing the economy but I have not looked into that myself to be able to tell you whether this is a good or bad thing.

But, whenever you have an economy where the main player is the government, fiscal discipline is at the core of it. If you get to depend on foreign currency your flexibility as a government is also limited.

TZ: Since the Zimbabwean economy is largely informal, what do you think can be done to try and tap into that huge amount of cash which a lot of surveys have shown is within the informal sector?

PU: Being informal is an indication of something much bigger. If people came into the informal economy, it is probably because of bottlenecks and red tape and I think that is something that should be worked out.

There is a need to look at informality, not necessarily as a bad thing, but as a symptom of dysfunctionalities characterising the way government operates.

I mean for me, if I need to create a company and I spend, I do not know how many days to get just my business to be registered and I need to pay I do not know how much. I think the best and easiest way for me to survive is to become informal because I have customers for what I am doing.

So, we should probably not only focus on the informal as an issue, we should look at what has created informality. That said, I also believe if people have to rely on informality more and more it is probably because of a lack of opportunities.

I mean, you are a young guy, you have learnt, spent your time at school educating yourself, gained skills and then you try and find a job but do not find one, should I come and blame you for doing something that will help yourself? No.

That is how I think we should be looking at this thing. We have had a lot of dogma.

It is just a reality of how our economies have taken us to some impasse, like a dead-end. I mean you have young people joining the labour force with skills and some without skills and then there is no opportunity available to them.

So, at the end of the day what will we need to do? We need to do something and the easiest thing to do is become a small trader.