‘Govt should adopt pro-business reforms’


THE government should adopt and put emphasis on pro-business reforms to enhance export earners’ capacity to earn foreign currency and capacitate industry in order to reduce the need for imports and improve foreign currency inflows correspondingly, a research service has said.

This comes as the Reserve Bank of Zimbabwe (RBZ) says it is targeting a reduction in money supply growth this year which has been largely responsible for the weakening of the local currency against the US dollar exchange rate and associated inflationary pressures in the last three years.

In an analysis of the monetary policy statement announced recently under the theme “Ensuring Exchange Rate and Price Stability”, Akribos Research Services said government and the RBZ should follow up the pro-business reforms rhetoric with action on the ground.

“It is concerning to note that subsidies on fuel, grain, power and other undisclosed expenditure calls underpinned money supply growth of 80 percent and 316 percent for money in circulation and transferrable deposits respectively in 2019,” said Akribos.

Zimbabwe’s annual broad money supply stood at $34,98 billion in December 2019 up from $31,82 billion recorded in November the same year.

“Given that there still remains high demand for imports in the form of power, fuel and grain going into 2020, we are concerned that the pressure to meet these costs through undue money supply growth remains high.

“This therefore heightens the risk associated with currency weakness and resultant high inflation for 2020,” they said.

“Key to (pro-business) such reforms begin with offering a truly market-determined exchange rate to generators of foreign currency through the interbank market and minimal foreign currency acquittal, surrender and conversion demands.

“This would improve the trust deficit in the financial services sector and assist in shoring up the foreign currency required in the economy,” Akribos said.

Akribos said the pegging of minimum capital requirements in foreign currency results in the new capital thresholds for banks and microfinance institutions becoming a moving target and with it, the motivation by banks to not lend out money as they chase a capitalisation level that is dictated by the strength and or weakening of the Zimbabwe dollar versus the US dollar.

On the plus side is the increased governance requirements for the microfinance sector which they said was a welcome development given the increased incidence of poor risk management oversight within the sector that was threatening the growth of lending in that space and shareholder loss of value resulting from losses.

“Going forward we believe that the increased transparency of the RBZ in inflation targeting should be followed by increased timely disclosures on monetary statistics data and balance of payment information.

“Current delays in the dissemination of such information would most likely thwart efforts to reduce the overall impact of high inflation expectations on overall price stability,” said Akribis

The monetary policy statement announced by the RBZ did not depart from the Monetary Policy Committee’s deliberations and subsequent recommendations that were made on January 17, 2020.

Suffice to say that inflation targeting would be used as the main policy tool in underpinning macro-economic stability. It is on this premise of stability and subsequent rains in the months of January and February 2020 that the monetary authorities maintain that GDP growth will be three percent for 2020.

“This would be underpinned by agricultural output which is now expected to fare better notwithstanding the current season’s drought concerns.

“Mining is expected to perform better in 2020 with primary producers having more consistent power supplies.

“Total gold deliveries significantly improved towards the last quarter and this is expected to carry over into 2020,” the research service said.

According to statistics from the RBZ, gold deliveries for the last quarter of 2019 averaged 40 percent better than in 2018 as a total of seven tonnes of gold were delivered in the last quarter of last year compared to five tonnes in 2018.

The growth in deliveries largely originated from small scale producers who accounted for 63 percent of deliveries.

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