Dump Zim dollar, experts tell govt… as local currency flops, basic goods prices keep soaring
THE government is coming under growing pressure to return the country to the general use of multi-currencies anchored by the American dollar, as the prematurely re-introduced Zim dollar continues to plummet on the black market, the Daily News reports.
This comes in the wake of under-fire Finance minister Mthuli Ncube’s latest and much-criticised economic measures — which appear to have added fuel to an already raging fire, as Zimbabwe’s economy continues to burn.
Speaking in Harare yesterday — during a lively Daily News breakfast forum on the state of the economy — captains of industry and economic analysts said although the government wanted the country to de-dollarise, the situation on the ground indicated that the economy was in fact re-dollarising.
“As we have always said, you cannot bring in a currency when there is no production, single digit inflation and fiscal consolidation.“Fiscal consolidation means two things. You must clear your debt and you must have a budget surplus.“All these things were not in place, yet the government enforced the local currency and naturally it has been eroded by inflation and the economy has begun to re-dollarise,” economist and Africa Economic Development Strategies (AEDS) executive director, Gift Mugano, said.
He also said that the government was in denial over re-dollarisation, adding that authorities themselves were fuelling the process towards this by allowing some business sectors to trade in foreign currency.
“The challenge that we have is policy inconsistency. What are we saying about the US dollar? Are we using the Zim dollar or the US dollar?“If we are using the local currency, why are we taxing people in the US dollar and why are we exempting others?” Mugano asked.
He also said that apart from driving re-dollarisation, exemptions were creating market distortions which were impeding economic development.
“We have distortions in the fuel pricing regime. The pricing in garages for the local currency is $18 a litre, which is equivalent to US$0,50.
“For the US dollar garages it’s US$1,40 or $1,20 — depending on which garage you are going to. So, you see, even angels will be corrupt (under these circumstances).
“They will take fuel from the Zim dollar garage and sell them at the foreign currency garages. And so, we will never go anywhere with this de-dollarisation programme,” Mugano said.
He also said Ncube’s recently announced Zim dollar currency stabilisation taskforce, which he will chair, would not work.
He also said Ncube’s recently announced Zim dollar currency stabilisation taskforce, which he will chair, would not work.
“There are two factors here, the market and the government. The market has started re-dollarising like what happened in 2009, while the government is resisting this on the other hand, but is still enabling re-dollarisation through exemptions.
“At the very least, if the government is not comfortable with going back to the US dollar, then let’s have a dual currency system with the US dollar and the Zim dollar moving together, and in that process we will begin to see who will be defeated,” Mugano added.
On his part, economist Pheneas Kadenge said dollarisation had already happened, and it was best that the government aceppted this and removed the ban on the general use of the US dollar.
“Dollarisation has already happened and what I would urge the authorities to do is just accept that this has happened.
“I think the reason why the government doesn’t want to admit it is because if we officially dollarise then government would be obliged to pay civil servants in foreign currency, and the government does not have that kind of money.“The other problem with it is that it has to be earned, unlike the local currency which can be printed. That is where the issue is,” Kadenge said.
He added that many of the country’s problems emanated from “out of budget spending” which the government needed to address.
“The main mandate of the central bank (Reserve Bank of Zimbabwe) is to maintain price stability — which is low inflation and which (RBZ governor John) Mangudya is expected to do.
“However, the Ministry of Finance, with its fiscal indiscipline, is requiring the RBZ to monetise the budget deficit.
“The monetisation, which is the printing of money to cover that gap between RBZ and government revenue inevitably increases the levels of inflation in the country,” Kadenge said
“This increase in inflation also then affects the exchange rate. So, the functions of money are now being destabilised by the printing of money by the RBZ — not out of choice — but in order to fix a problem created by the MOF (Ministry of Finance),” he added.
The marketing director of Dairiboard, Tracey Mutaviri, said the economy — particularly the informal sector — had dollarised, hence the need to conduct studies and design policies which would inform the government on how to tap into this foreign currency.
“The informal sector has dollarised … but are the receipts meeting the requirements of sectors generating the foreign currency, infrastructure development and social services?
“We also need to know how this foreign currency is being utilised because we have never heard of an independent audit of the utilisation of foreign currency,” she said.
But Mangudya said there would be no return to the US dollar era, as the country’s economic problems were mostly behaviour-related and not monetary policy related.
“Statistics indicate that the local currency we have in circulation is not enough to drive inflation, and the foreign currency we are receiving is going up.
“So, why is inflation and the exchange rate going up? he asked.
“The answer is that we need to look at where we are coming from as a nation. In 2008 people where traumatised and they lost their savings.
“So, what is happening now is that we have people who are speculative. They are resisting the local currency and preferring the US dollar to store value and capital.
‘So, these are some of the challenges that we need to look at and say how do we deal with them and inspire confidence in the local currency,” Mangudya added.
He also reiterated that re-dollarisation was a process that would take at least five years to implement.
“What we are going to do as the government is come up with a five-year framework on how we are going to de-dollarise the nation.
“This will require support from everyone, including business, banks, the informal sector and general Zimbabweans,” Mangudya said.
He also said Zimbabwe would only get out of the current economic hardships through increased production and having confidence in the local currency.
“Our production is lower than our potential. We are importing maize, wheat and other products, for example, and this is another area which causes corruption.
“If a country is not producing, we will have many challenges. We cannot also attract investors in Zimbabwe when we are not producing ourselves.
“You cannot attract an investor to come into a country with high inflation, instability of the exchange rate and corruption. So, what we are trying to do is to build blocks for those investors to come,” Mangudya said.
Since Ncube introduced his latest new measures on Wednesday this week, the country’s thriving foreign currency black market has run amok, amid a fresh wave of price hikes of basic consumer goods.
Observers have also expressed the fear that things could soon get out of hand in the country if authorities don’t move with speed to remedy the dire situation facing poor Zimbabweans.
In June last year, Ncube rocked the local market with his sudden decision to end the general use of multiple currencies in the country — including the US dollar — without having put adequate measures in place to shore up the resuscitated Zimbabwe dollar.
However, and following the government’s rushed ban of the general use of the much-coveted greenback in the country, it has come back with a bang — with many businesses and ordinary people now openly opting to charge and sell their goods in this currency.