Zimbabwe's economy has not been performing well since 2017 despite reports by the Ministry of Finance and Economic Development that it was stabilising. In the year 2020, the economy contracted by 4.1 per cent and the slump was largely attributed to the Coronavirus pandemic and lack of government support to local businesses.
Government, in May 2020, promised to bail out businesses through a financial stimulus package to the tune of ZW$18 billion. However, eight months later, the funds were still lying unutilized in banks' coffers despite many businesses struggling to stay afloat.
There was a great optimist when President Emmerson Mnangagwa announced the package whose allocations were as follows:
|Agriculture Support||$6.08 billion|
|Working Capital Fund||$3.02 billion|
|Mining Sector||$1 billion|
|SME Support Fund||$500 million|
|Arts Sector Fund||$20 million|
|Health Sector Support Fund||$1 billion|
|Food Grant||$2.40 billion|
|Broad Relief Measures||$1.50 billion|
|Liquidity Release from Statutory Reserves||$2 billion|
Covid-19 Stimulus Package failed to Jump Start the Economy
As part of the arrangement, the government was to provide guarantees while local financial institutions interface with beneficiaries directly. The delay prompted the then Parliamentary Portfolio Committee on Budget, Finance and Economic Development chair, Felix Mhona to air his frustrations.
At one parliamentary committee meeting in September 2020, Honourable Mhona said;
“The Committee is concerned with the delay in the disbursement of the ZW$18.2 billion stimulus package, which amounts to 28.6 percent of the 2020 national budget.
“These delays in the wake of imminent prolonged lockdowns will exacerbate the impact of the pandemic on the economy. As such, a growth target of -4.5 percent may not be achieved.”
It appears that while the government was vocal about the stimulus package, behind the scenes very little was taking place and businesses were reluctant to subscribe to the scheme for two major reasons. Firstly, the lack of activity in the economy during lockdown was too big a risk to borrow due to weaker consumer appetite for products. Secondly, the 20 percent interest rate was and remains too high for a bailout purpose in these difficult times.
“The interest rate was no more than 20 per cent. It is high now that we have stability on inflation, then at the time when inflation was high it was sustainable but now I think there needs to be a relook at that,” Confederation of Zimbabwe Industries (CZI) president Henry Ruzvidzo in an interview.
Moreover, the terms for the loans have since been overtaken by monetary developments and now need to be re-examined, analysts say.
“If you remember last year, the economy was predominantly Zimbabwe dollar denominated and the local currency was depreciating rapidly hence a higher interest rate was understandable. However, towards the last quarter of 2020 the economy began to dollarize and it brought with it some stabilization on inflation so a 20 percent interest rate is now high,” economic analyst, Victor Bhoroma said.
The effects of this were felt in the increasing number of companies on the Zimbabwe Stock Exchange (ZSE) ring-fencing earnings by withholding dividends to cushion operations against uncertainties ahead as opposed to borrowing. In-state media headlines and other platforms sympathetic to the administration, the stimulus package was described as the saving grace but in real terms, it was inconsequential.
SMEs challenges in accessing the stimulus package
The situation has been worse for small and medium-sized businesses who feel neglected yet they constitute over 60 per cent of the economy.
“The ZWL$500 million that was promised to us as SMEs never came. When we went to the banks we found that the lending terms were still the same as those of pre-COVID-19 which were still high, so ultimately there was no assistance,” SMEs Association of Zimbabwe director, Farai Mutambanengwe said in an interview.
The Zimbabwe Coalition on Debt and Development (ZIMCODD) - a local public finance watchdog in its report says the stimulus package lacked financing options due to the country’s indebtedness to both local and external financial lenders and unavailability of reserves. With banks directly interfacing beneficiaries, the government has not been transparent enough to reveal quantities disbursed and beneficiaries from the funds so far, but concede the funds have not been fully utilized.
“We still have the ZWL$18 billion stimulus package in the second lockdown. I do not have the figures at hand but it certainly is still available but I cannot say as of now if there is going to be an addition to that or any changes to the interest rates,” Information and Publicity Secretary, Nick Mangwana said in an interview.
Impact of the package on the economy
Following months of spirited propaganda and claims that drawdowns of a Covid-19 stimulus package announced in May 2020 had kicked off, industrialists told Finance minister Mthuli Ncube in October 2020 to come out clean on the strain such a rescue package would place on the government's finances.
The Confederation of Zimbabwe Industries (CZI) said in a paper submitted to the minister end of October 2020 that they understood he had little room to manoeuvre and had to decide whether to inject the ZW$18 billion into the economy and face a possible hyper-inflationary scourge, or withhold the stimulus and suffocate an already struggling industry. Industrialists felt that Ncube had chosen not to come clean on the issue by making it clear business was on its own in the battle to save companies as the government could not bear the consequences of spiraling money supply growth and hyperinflation.