Zimbabwe: Zim's U.S $2billion Capital Flight Migraine
AT a time
when Zimbabwe is desperately in need of a huge cash injection to escape current
illiquid conditions, authorities have been left dumbfounded by the scale of
illicit financial flows (IFFs).
Recently, the Reserve Bank of Zimbabwe (RBZ) revealed that the country is losing US$2 billion through IFFs annually.
To understand the gravity of this, a few statistics will help.
Zimbabwe has a small economy, whose Gross Domestic Product (GDP) is under US$10 billion.
Its 2016 National Budget is under US$5 billion, a figure that pales into insignificance when compared to that of South Africa.
Annually, the country has been realising foreign direct investment (FDI) at the scale of about US$400 million.
Now if US$2 billion is lost annually, it means money is flying out of the country faster than it's coming in.
This, in itself, helps explain the liquidity crisis confronting the country's economy.
Even though Zimbabweans based outside the country are sending US$1 billion back home in Diaspora remittances annually, their efforts fall far short of what is required to close the gap.
And by the way, there are over three million Zimbabweans in the Diaspora; the bulk of them in South Africa, the United Kingdom and the United States.
What is making the country's situation tricky is that a huge portion of liquidity circulating locally is doing so outside the formal channels.
The now dominant informal sector is said to be holding onto an unverified US$7 billion.
Not helping the situation is the fact that the country's productive capacity has given in to economic pressures.
In other words, the country is now a net importer. Even small things like hairpins and shoelaces are being imported, worsening the hard currency outflows.
For the authorities, it is a double headache.
Theirs is need to find a solution that can plug IFFs as well as encourage the formalisation of the informal sector.
Source: http://allafrica.com/stories/201602250692.html