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Concerns that bond notes will not hold their US dollar value and will be a similar version of the failed Zimbabwean dollar, rendered worthless by hyperinflation in 2008/09, will add to the country’s economic woes.
This is according to an analysis on Zimbabwe’s Central Bank issuing bond notes follows from Alisa Strobel, senior economist at IHS Global Insight.
Increased uncertainty, a breakdown in business confidence, and the country’s severe balance of payments difficulties prompt IHS Global Insight to downgrade its forecast for economic growth in 2016 and 2017 to -0,3% and -0,4%, respectively.
The increase of uncertainty over the impact of these bond notes to the Zimbabwean economy and fears we could see a repetition of 2009’s hyperinflation bodes ill for the economy across the board.
Zimbabwe’s foreign-reserve holdings remain critically low, and with a high propensity to import, foreign reserves cover less than one month of imports of goods and services. With such low reserves, Zimbabwe can no longer draw them down as a partial means of financing its current-account deficit or re-establish its standing with any of its major creditors.
International reserves in Zimbabwe have reached their deepest low, and confidence is declining. Foreign investors remain wary in the wake of controversial policies. Domestic demand has collapsed amid a struggling manufacturing industry and agricultural sector.
The country’s liquidity crisis has worsened to the point that most banks reduced withdrawal limits during the summer months from USD500 to USD50 and USD100, per day. The introduction of bond notes in Zimbabwe was meant to ease liquidity shortages. But the announcement has so far received significant critique from opposition leaders. It has also led to a current wave of panic among the population, who started withdrawing from banks.
Previously the use of the Reserve Bank of Zimbabwe as a quasifiscal expenditure vehicle by the ruling Zimbabwe African National Union-Patriotic Front government, coupled with price controls, led the Zimbabwean dollar to collapse as official inflation soared to 231 000 000% in July 2008.