With no currency of its own and reduced by years of mismanagement to a shadow of its former self, Zimbabwe’s central bank struggles to prop up troubled banks and help revive the country’s fortunes.
Now, that could change if the new Reserve Bank of Zimbabwe (RBZ) chief John Mangudya maintains his strategy to shift from bad old policies that crippled the bank while steering clear of politics as he seeks a turning point for the banking sector and economy.
But he still has to find a way past two major hurdles that probably could dash hopes of polishing the bank’s image and fixing the financial system: Zanu PF politics and the country’s unsustainable external debt.
Being at the helm of a an institution that had become notorious for bending rules and shifted its focus to the personal whims of politicians can be no easy feat, especially amid political turmoil.
Should President Robert Mugabe decide to remain in power and investors continue to shun the country as a result, it will effectively test Mangudya’s ability to get around these setbacks.
Zimbabwe is in the throes of a severe liquidity crisis that has squeezed banks and forced scores of cash-strapped firms to shut down. A number of smaller local lenders have collapsed while others teeter on the brink.
One of Mangudya’s main worries is bad loans that spiked to critical levels of 20 percent in October this year, from 18 percent in June.
But his recent move to free banks from danger by buying toxic loans from them has been widely praised as a masterstroke likely to prevent many from going bust even as financial sector recovery has proven to be elusive.
Fewer options are available to him at the moment, presenting quite a jolt for monetary policy at a time when the Zimdollar has since 2009 been shelved in favour of a basket of hard foreign currencies.
The artistic RBZ head reiterated last week that certain economic fundamentals ought to be achieved before the reserve bank were to consider printing the local currency again; saying an early return for it would be suicidal.
“What would be the fundamental reasons for (early) re-introduction of the local currency? That will be economic suicide…” Mangudya cautioned.
He gave the warning at a conference to unveil new special coins meant to alleviate a shortage of lower denomination currency and make business transactions easier.
The Zimbabwe Asset Management Company, formed earlier this year to buy bad debts from banks, has to date acquired US$60 million worth of non-performing loans that have assets backing them.
 
But the central bank will have to make do with that in the time being as long as time is not yet ripe for the local currency’s to bounce back, with international reserve not enough to cover it.
Already dogged by a lack of foreign investment due to President Robert Mugabe’s hostile indigenisation policy, current Zanu PF internal power struggles threaten to stoke economic troubles further.
Zimbabwe’s economy had steadily been on a recovery path after a decade-long downturn marked by an annual inflation rate which peaked to 500 billion percent in 2008.
That rebound ended after a July 2013 election saw Mugabe claim “resounding victory” in what the mainstream opposition MDC party says was plain electoral theft.
According to the latest International Monetary Fund foreasts, Zimbabwe’s economy grew by a robust 10.5 percent in 2012, while it will decelerate to 4.5 percent in 2013.
The growing signs of another economic disaster waiting to happen could stifle Mangudya’s intentions if the solution as to who will succeed ailing Mugabe, 90, is not quickly found.
The Mugabe sucession confusion has cast a shadow on the livelihoods of average Zimbabweans, many of whom rely on the goodwill of foreign donors and those in the diaspora for survival.
Vowing to “get back to basics” and “to clean up and strengthen banks’ balance sheets and provide them with the liquidity to fund valuable projects for the economy”, the central bank has set itself a goal that is as prudent as it may later prove to be a tall order.
Could this be this be the beginning of an epoch-making era for an institution bogged down by many years of reckless policies and blatant disregard for its autonomy?
The jury is still out for Mangudya because the major hurdles that have spooked Zimbabwe and held back its economic potential are still lurking in the shadows of Mugabe’s lengthy rule, but he is certainly putting a brave fight.