‘Possibility of prices coming down in 2020 very high’
Q: Your few months in office, what have you achieved and your challenges?
A: Am roughly two months in office. As a ministry, we work as a team and success and failure can’t really be ascribed to individuals. My minister … Mthuli Ncube and secretary George Guvamatanga are very supportive and have given me full orientation and am already on the ground ensuring we realise the economic development that we all want. The major challenge we are facing as a country is lack of fiscal space to be able to implement government programmes.
Q: With the current macro-economic environment, do you see prices coming down in 2020 and why? Inflation is ravaging the $2 and $5 notes and the 25 and 50 cent coins have been rejected by the informal sector. When can we expect to see the new $10 and $20 notes? When are we likely to see stability, if any?
A: The possibility of prices coming down in 2020 is very high on account of recent trends in inflation dynamics, where month-on-month inflation has been trending downwards from 38,75 percent in October, 17,46 percent in November and 16,55 percent in December 2019. The high inflationary environment of 2019 was mainly due to adjustments in relative prices, in line with exchange rate movements, following measures taken on currency reforms.
These adjustments will be minimal in 2020 as most prices have already adjusted, with the latest adjustment being on electricity, education and other utilities. Moreover, government is committed to continue implementing policies that contain money supply growth under the Monetary Targeting Framework. This is anticipated to result in lower inflation in 2020.
Whilst the inflationary environment has somewhat eroded the value of our currency, it is important to note that Zimbabwe’s currency denominations are very low compared to peer countries in the region.
Country Highest Denomination
South Africa 200 rand
Zambia 100 kwacha
Mauritius 1 000 rupees
Kenya 1 000 shillings
Tanzania 10 000 shillings
Mozambique 1 000 meticais
Zimbabwe 5 dollars
This has prompted the government to consider injecting higher denominations. The $10 and $20 and $50 are coming soon as most of the logistics have been put in place.
Q: What about the increase in wages? It is clear salaries are not enough to meet the needs of a worker? For example a worker has to pay rentals in US dollars e.g a two bed-room cottage US$80 to US$200, depending on location. A small food hamper (single packets of tea bags, rice, sugar and salt, bottle of cooking oil, among other few basics) cost $900. School fees for a primary student are $310. This needs to be done on a salary of $2 500 after the cola (cost of living adjustment) which is below the Poverty Datum Line pronounced by Zimstat.
A: Government notes the need to modestly remunerate its employees. It is also noted that disposable incomes for the workers have been eroded over time.
You should note that review of remuneration of workers and funding of any other goods and services is subject to resource availability. This is important as government is pursuing fiscal discipline critical to contain fiscal deficits, the major source of instability through fuelling inflation.
During the month of January 2019, government paid cushioning allowances to civil servants to the tune of ZWL$300 million. This is meant to alleviate the plight of workers while negotiations are underway. However, the government’s offer is in line with the recently approved budget for 2020, which was guided by the projected performance of the economy.
The negotiations are ongoing under the platform which government and employees representatives meet to negotiate for various issues affecting the employees. This platform is called the National Joint Negotiating Council (NJNC) and the Bipartite Negotiating Platform.
Negotiations between the government and Apex Employee Councils are still ongoing. So the cushioning allowance allows our loyal and hardworking citizens to at least have something while negotiations are taking place.
Q: The ministry went for a retreat to discuss implementation of the budget and the country’s economic woes. What are some of the changes or transitions we should expect?
A: The ministry of Finance and Economic Development took time to take stock of the implementation of the TSP (October 2018-December 2020). In particular, analysing what was unearthed during the TSP Mid-Term Review done in early December 2019 and see how the findings can be useful going forward during the implementation of the last mile of the programme.
In line with the TSP review, the ministry discussed the processes and timelines for the drafting of the 2021-2025 TSP successor plan. The successor five-year plan will be Integrated Results Based Management (IRBM) compliant.
Furthermore, the workshop discussed the possible 2020 National Budget risks and taking corrective measures to mitigate the risks as well as coming up with an implementation matrix for the 2020 National Budget, which is a consolidation of all the actions that need to be done and clearly outline responsibilities and timelines.
The workshop resolved that policies and priorities set out in the 2020 National Budget will suffice, which include entrenching fiscal consolidation during the last mile of the TSP as well as focusing on measures that will ensure growth across all sectors of the economy as we move from austerity to growth and increased productivity and in line with the 2020 National Budget incentives.
Government will prioritise improved power generation as well as ensure availability of resources for power imports are in place. In addition, measures to ensure food availability will be put in place, given the threat of drought as well as prioritise drought mitigation measures in the 2020 Budget, including prioritising irrigation development. Given the dams that we have, it is critical that we prioritise irrigation and weather proofing our agriculture.
Notably, the Treasury will be more conscious to implementing cash budgeting in order to abate the unsustainable fiscal deficit in the wake of limited financing capacity of the domestic economy. This is very essential in view of the identified risks.
The workshop also noted that there would be need to expedite the formulation of the successor plan (National Development Strategy) to enable it to guide the 2021 National Budget.
Q: The country is plagued by the three-tier pricing system which is making lives unbearable for the transacting public as cash barons sell cash for large premiums. What is government’s position, seeing it is aware of this although not much has been done to clamp down on the cash barons?
A: Government through the Central Bank is injecting cash into the market through banks. The target is to have a cash to broad money ratio of between 10 percent and 15 percent, as in most countries in the region. Currently our cash to broad money ratio is about 4 percent. The injection of the cash has been staggered to dampen the unintended inflationary effect of injecting cash into the system at once. Given, the high levels of negative expectations in some circles, huge injections may trigger price increases and exchange rate depreciation as they will be misconstrued as increase in money supply.
The method being used to inject cash into the system involves banks buying cash from the central bank using their RTGS balances, in this way, there will be no increase in money supply due to cash injections as it will be a matter of transforming one form of RBZ liabilities (RTGS) into another (cash in circulation) at par value. Currently, we have roughly $1,1 billion notes and coins in circulation.
The government is aware of the acts of the unscrupulous business people who are in the business of charging multiple prices, this is against the law and we encourage the law enforcement agents to use the available statutes to bring to book such business people.
Q: The country is re-dollarising despite the ban of US dollars. Communities near our borders, like South Africa, have already dumped the currency. Mining towns like Zvishavane are also discarding the currency. Mbare Musika in Harare is also functioning under a US dollar regime. Some shops in the formal sector are also embracing the US dollar to cushion themselves. Is government aware of this, and do you have a plan?
A: Yes, the Government is aware that some sections of the public are transacting in US dollars, but that alone does not mean that it is a rejection of the local currency. There are factors that the government is aware of, just to mention a few: Proximity of some areas to South Africa and having the majority of Zimbabweans in these areas working in South Africa means that these areas receive remittances from South Africa, which they use in local transactions.
I am sure this is also related to the current shortages of notes for transaction purposes, which as government, through the Reserve Bank of Zimbabwe, we will address by availing more cash and bigger denominations for the convenience of the transacting public.
At the heart of the ongoing currency reforms there is need to put in place measures to ensure that people in the country prefer the local currency for transactions and use the scarce foreign exchange for foreign payments. The acceptance of the local currency hinges on exchange rate stability.
Thus, government through the central bank, will institute measures that are geared towards exchange rate stability. Measures include tightening monetary policy and continuing to allow free flow of foreign exchange into the country. Authorities are committed to implementing remedial measures so as to contain inflation, thus maintaining the value of the local dollar to increase its acceptability as a medium of exchange and store of value.
Q: What is the government doing to curb parallel market activities?
A: The way forward for Zimbabwe is for all of us to know that there is no quick fix to our problems except production. What is needed is competitive production and exportation. The government would want to have a full private sector-led economy in which the players are responsible and disciplined. This entails government and economic players working together for the benefit of our country.
Regarding parallel market activities. Take note that the movement of funds is happening through mobile money platforms mainly EcoCash, ZipIT and RTGS. Through these platforms, the Financial Intelligence Unit (FIU) is able to see who is doing what. Banks should apply the know-your-customer rule so that we don’t sanitise proceeds of money laundering and illegal currency trading. Stern measures are being taken against institutions and individuals involved in these activities. This will involve freezing of accounts, asset forfeiture, and cancellation of licences, among other remedies. So as long as banking platforms are being used and abused for currency manipulation and illegal activities, we are in a position to bring the culprits to book.
This is the time to defend our currency and it’s everyone’s responsibility to bring back the much needed confidence in our systems for the country to move forward. A stable currency allows all of us to plan. Exchange rate indexation in local pricing of goods has resulted in businesses pricing themselves out of business. Customers have reached a stage where they only buy basics and it’s high time our businesses review their pricing models. Businesses grow based on volumes and small margins.
Q: In December, the Finance ministry and RBZ assisted fuel suppliers with letters of credit (LCs) but we are still seeing fuel shortages. What is really the problem and will Zimbabweans ever outlive the fuel queues?
A: LCs for fuel suppliers have helped in improving fuel availability in the country, but LCs as a payment method is not the panacea to the fuel or any other shortages in the country. It remains imperative that the country addresses the supply side in the economy to ensure that there is enough domestic production to meet requirements and export excess to generate foreign exchange.
Therefore, in a nutshell, our problem is that of low production against high demand for goods and services in the country. In essence, LCs guarantee fuel payments on the basis of future foreign exchange inflows into the country, therefore it is important that we produce more exportable products and minimise unnecessary imports.
My response to the question whether Zimbabweans will ever outlive fuel queues is that, with enough foreign exchange inflows coupled with prudent use of the same, yes it is possible to outlive the fuel queues.
Q: The roller meal subsidies do not seem to be working and people have not been able to access maize meal. What are the real issues? Does government have the capacity to put in subsidies since they had not been budgeted for initially?
A: With effect from December 1, 2019, government modified the subsidy model away from grain to roller meal. This was necessitated by the need to eliminate leakages and inefficiencies that were associated with the grain subsidy, resulting in targeted vulnerable groups failing to enjoy the intended benefits.
The rollout was initially targeted at roller meal. Rollout commenced in December with selling price to millers of maize being reviewed to ZWL$4 000 per metric tonne (mt). Consequently millers and bakers immediately raised the retail price of 10kg roller meal from ZWL$50 to ZWL$102, which was beyond the reach of many consumers, especially vulnerable groups.
In response to this development, government introduced the subsidy on roller meal at a subsidised price of ZWL$50 per 10kg bag with the subsidy payable to millers set at ZWL$52,87 per 10kg bag. The subsidy is targeted on monthly requirements of 40 000mt of maize to produce 32 000mt of maize roller meal.
To kick-start the subsidy programme, government paid upfront the subsidy component to 12 GMB licensed millers to immediately supply 38 400mt of roller meal to avert shortages of mealie meal during the festive season. Selection of the 12 grain millers was based on:
l Capacity of the miller;
l Regional balance to ensure wide coverage and
l Availability of the grain resource at Grain Marketing Board (GMB) depots.
However, millers were constrained by shortages of maize from GMB, hence could not supply the targeted quantities. This resulted in a scramble for limited available quantities of subsidised roller meal.
With regards to shortages of roller meal on the market, indications are that some consumers are buying in bulk for resale at higher prices, there is shortage of maize in country at GMB depots, logistical challenges in distributing the subsidised roller meal and corruption.
In response, government is implementing the following measures to eliminate leakages and improve availability of roller on the markets:
To ensure transparency and competitive participation of all GMB licensed millers, government, through the ministry of Industry and Commerce, came up with an operational framework of the programme which is already underway.
The new framework entails ministry of Industry and Commerce registered millers being paid the subsidy after verified production of roller meal instead of advance payment.
A team comprising key stakeholders including ministries of Industry and Commerce and Finance and Economic Development will undertake the verification process, for payment of the subsidy.
To augment depleting stocks of local maize, government embarked on importation of maize.
In addition government removed the licensing, duties and permits requirements for importation of maize, wheat, flour and maize meal by the private sector.
Q: Industry and the population at large seem to be losing confidence in your ministry. What assurance do you have that people will at least be able to live above the PDL?
A: The Poverty Datum Line stands over ZWL$3 000. Government is engaging its employees to improve their incomes in line with the poverty datum line, however, within the capacity of envelope to so as not to destabilise the economy further.
Government awarded a cushioning allowance in January 2020 ranging from ZWL$400-ZWL$800. In addition to the allowance, the cost of living adjustments negotiations between the government and employee representatives have been concluded. These two efforts are expected to leave the lowest paid worker receiving a reasonable salary.
However, it is important to note that government is seized with other pressing commitments which include ensuring food security and social protection in the wake of imminent drought in 2020. In that regard, government will continue reviewing the salaries of its employees as and when the resources are available as well as increasing non-monetary allowances for the workers to improve their overall welfare. Hardships are expected given this transitory phase and as a government we are trying to live within our means while reviewing the conditions of service on a regular basis in line with the available resources.