Future is bright, upbeat government says… as Ncube asserts Zim dollar is here to stay
THE government asserted yesterday that the Zimbabwe dollar, and not the American greenback, would remain as the country’s main currency, as authorities strive to revive the economy and improve the lives of long-suffering citizens.
Speaking at a well-attended Daily News post-Budget breakfast meeting in Harare, Finance minister Mthuli Ncube, said what had happened during the era of the government of national unity (GNU), when the US dollar became the main currency in the country, had been a huge mistake that was “never to be repeated”.
This comes as the once poorly regarded Zim dollar has been holding steady against the US dollar in recent months, on the back of a raft of measures that have been introduced by authorities, including the launch of a foreign currency auction system.
The forex auction system, in particular, has been credited with stopping a precipitous decline in the value of the once wobbly local unit — which has seen the prices of basic goods and services stabilising, and the once rampant black market being tamed.
Yesterday, Ncube and his permanent secretary George Guvamatanga told business leaders and consumers at the Daily News gathering that adopting the greenback as the country’s anchor currency in 2009 had been a major mistake.
“One of the biggest mistakes we have made before was to make the US dollar our primary currency. We should not repeat that mistake.
“If you recall, we ran budget deficits throughout the official US dollar period. We ran down our industries in terms of de-industrialisation. In fact, we had to introduce a Statutory Instrument … when we tried to protect our industries from imports because the currency was hurting competitiveness?
“Hence, we sought administrative controls to bring back competitiveness. That is not the competitiveness we want,” Ncube emphasised.
“Competitiveness comes from your own currency. So, we have to protect and promote it. We are going through a transition, and so don’t worry about the fact that you are allowed to use other currencies,” he added.
This also comes as the government recently unveiled a new economic blueprint, the National Development Strategy (NDS1) — which authorities say will lead to economic development in the country and also further improve the lives of long-suffering ordinary people.
NDS1 replaced the Transitional Stabilisation Programme (TSP) which concludes at the end of this month. On his part, Guvamatanga also said the success of NDS1 would be anchored on the strength of the Zimbabwe dollar.
“I have heard a lot of noise from some commentators saying dollarise, dollarise and dollarise. Actually, when we crafted the TSP, we did what is called in industry root cause analysis. “We realised that one of the biggest mistakes that was made in the GNU was to dollarise. That mistake will never be repeated. “The local currency will anchor NDS1 … and we will build this economy on the basis of a strong Zimbabwe dollar,” Guvamatanga said.
All this also comes as the economy is beginning to hold steady following the recent implementation of a raft of measures.
As a result, the prices of basic goods and services have been stabilising in shops, after a bout of steep increases fuelled by the collapse of the local currency then against the US dollar.
When Ncube unveiled the TSP in October 2018, the Treasury boss was criticised at the time for his blueprint — which saw him, among other things, introducing a two percent transaction tax.
The TSP’s introduction also kicked in at a time that Zimbabwe began to experience its worst economic crisis in a decade, triggering steep prices of basic goods — amid rising inflation, shortages of fuel and critical medicines.
Yesterday, Ncube said he was determined to ensure the local currency’s stability continued under NDS1, in line with the country’s desire to achieve its goal of an upper middle-class economy by 2030.
“We are on a journey. The journey is Vision 2030. I can assure you we will get there … the future is bright. Surely, we cannot fail to grow the economy at an average rate of five percent per annum. “It is normal in East Africa that in a slow year the economies there grow by five percent and Zimbabwe can do the same. I have no doubt that our objective will be achieved. Milton Friedman, the father of monetary economics, says that inflation is taxation without legislation,” Ncube said further.
“So, we are determined to ensure that we deal with inflationary pressures by reducing the inflation tax. We are pleased with the progress we are making where inflation is headed downwards.
“Our expectation is that at the end of 2021, month-on-month inflation in August will be one percent … and by year end, year-on-year inflation will be down to about single digit. We are determined to get there and the medicine for it is a stable currency,” Ncube also told the Daily News meeting.
“We want the exchange rate to be stable and we will support the auction system. Currency stability is critical. The most important value of money, of course it’s a medium of exchange, is that it bridges the present and the future.
So it is that store of value that brings stability,” Ncube added.
This also comes as the Treasury chief last Thursday presented a $421,6 billion national budget for 2021, which he described as “a citizens’ budget”.
In that budget, the country’s workers got welcome tax cuts, as well as policies aimed at keeping prices of basic goods down. In addition, Ncube also gave the largest chunk of the budget to social service ministries such as
Health and Education — along with Agriculture, as he sought to address the myriad crises afflicting the two sectors.
This came as both industry and ordinary citizens had been clamouring for the removal of some of the country’s onerous taxes, to further improve people’s lives.
“The government remains committed to improving workers’ disposable income as part of the broader agenda to increase aggregate demand and savings.
“The recent salary and wage adjustments for public and some private sector employees necessitate a corresponding review in the personal income tax framework.
“I, therefore, propose to review the tax-free threshold from $5 000 per month to $10 000 per month. “I, further, propose to adjust the tax bands to begin at $10 001 and end at $250 000 per month, above which the highest marginal tax rate of 40 percent will apply.
“The above measures are effective from 1 January 2021. In addition, I propose to review upwards, the bonus tax free threshold from $5 000 to $25 000, with effect from 1 November 2020,” Ncube said then.