The latest cash crunch behind Zimbabwe’s protests

Protests against fuel price hikes in Zimbabwe have entered their third day posing a major challenge for President Emmerson Mnangagwa who replaced long-time leader Robert Mugabe and promised to repair the creaking economy.The crisis will not be easy to fix.

There is a severe shortage of dollars, fuel and medicines while inflation hit 31 percent in November, the highest in a decade. Foreign investors are by and large staying away.

Everyday life has been getting harder as the price of basic goods spirals. In the past two months, the country has suffered acute shortages of imported goods including medicines, food and fuel.

Motorists can wait for hours to fill up at fuel station where soldiers are often deployed to break up fights over who is next in line.

On Saturday, Mnangagwa announced to reporters that the price of petrol had increased to $3.31 per liter from $1.32 from midnight but there would be no increase for foreign embassies and tourists paying in cash U.S. dollars.

It was the final straw for some Zimbabweans and violent protests broke out on Monday. Three people including a police office died in those clashes and since then much of the country has been at a standstill as people stay at home.

Many people blame Mnangagwa for failing to fulfill his pre-election promises to kick-start economic growth and make a clean break with the strong-arm rule of his predecessor.

The country abandoned the Zimbabwe dollar in 2009 after inflation reached 500 billion percent the year before. In its place, the government adopted the U.S. dollar and other currencies including sterling and the South African rand.

People hoped the move would spell the end of spiraling prices and rampant money printing that made much of their earnings and savings virtually worthless.

But over time, supply of the U.S. and South African currencies dried up so in November 2016 authorities in Harare launched a surrogate currency – paper ‘bond notes’ designed to ease acute hard currency shortages.

The notes, which now have a total face value of $400 million are backed by a $500 million loan from the African Export and Import Bank, the central bank has said. They are used like cash.

Officially pegged to the dollar at a rate of 1:1, on the street $1 fetches up to 3 bond notes, reflecting the ongoing shortage of U.S. dollars and people’s desire to trade out of cheapening bond notes and into more reliable currency.

A dwindling supply of bond notes and coins has led to banks limiting daily withdrawals to as little as $30 in bond notes. Companies are struggling to pay for imports and foreign investors cannot repatriate dividends or profits.