RESERVE Bank of Zimbabwe (RBZ) governor John Mangudya last week presented his monetary policy statement (MPS) anchored on price and exchange rate stability.
This came at a time when Zimbabwe is battling economic woes, including inflation, domestic cash and foreign currency shortages, accumulation of arrears, fuel and power problems, among others.
Our reporter Pauline Hurungudo held a round table discussion with economists and industrialists on the policy. Below are the excerpts.
Economist and Corporate Rescue expert, Moses Chundu
This MPS was issued in terms of the Reserve Bank Act and going through it one gets a sense that it was being done as a ritual.
The main thrust is to stabilise the economy by bringing down inflation to single digit by December 2020 anchored by monetary restraint, coupled with a stable exchange rate.
The need to rebuild confidence within the Zimbabwean citizenry and to create a conducive economic environment for sustainable growth is acknowledged.
There are standard monetary prescriptions which are not new to the citizenry whose confidence need to be restored.
One doesn’t get what is going to change this time for the economic agents to believe the bank will achieve its goals.
Policy pronouncements must feed into economic agents’ expectations which shape the environment in the medium to long term.
The diagnosis which is the basis for the prescriptions is not an honest one.
To claim that the -6,5 percent growth for 2019 is largely explained by exogenous shocks in the form of the El-Nino and Cyclone Idai can only fuel the loss of confidence.
On exchange rate stability continuing to treat it as a fundamentals issue is deceiving ourselves.
With the country’s Balance of Payment position having improved from a deficit of US$1 388m in 2018 to a surplus of US$311m in 2019 largely driven by declining imports and growing exports one would have expected less pressure on the currency than it was in 2018 manifesting in a stronger domestic currency.
On the perennial cash shortage, we’re told the Bank will continue to gradually increase the notes and coins to the desired optimal proportion, but this gradualism is proving ineffective.
A maximum withdrawal of $300 per week is a joke. The market has a way of pre-empting the effectiveness of policy in gradualism. We probably need to balance the portfolio mix of money by replacing more of the RTGS with cash.
To measure progress on de-dollarisation by the proportion of the use of the local currency in the formal economy ignoring the amount of USD transaction taking place in the economy is deception of the highest order.
Pronouncing a 5-year window to fully de-dollarise in face of current distortions will only fuel the uncertainty.
Whilst the assurance that the bank will not temper with the legal status of the public’s foreign currency accounts is welcome, the issue is whether citizens can believe that given the history of betrayal.
Foreign direct investment decline from US$717m in 2018 to US$259m in 2019 and decline in net portfolio investment inflows from US$54,7m in 2018 to US$3,7m in 2019 is a clear sign of low investor confidence in the economy.
The report of 299 blocked funds transactions with a value of US$861 million having been rejected for various reasons is not helping with confidence building.
Economist and Zimbabwe Coalition on Debt and Development (Zimcodd) director, Janet Zhou
The 2020 monetary policy was presented amid higher expectations by Zimbabwean citizens to ease the current financial woes emanating from the increasingly volatile financial market.
The governor highlighted that the statement is coming at a time when “the thrust of the central bank is to stabilise the economy by bringing down inflation and stabilising it after the initial burst of high inflation that resulted from the liberalisation of the exchange rate and fiscal consolidation in 2019”.
These are the aftermaths of the monetary and fiscal policies implemented in 2019.
These policies necessitated economic recession the country is grappling with.
An appalling revelation in the February 2020 monetary policy statement is that only 200 entities hold 50 percent of the $34,5 billion bank deposits.
The economic hegemony of these 200 entities confirms the existence of economic cartels comprising of a few entities controlling the economy.
The concentration of bank deposits in the hands of the few is taking place at a time when extreme poverty is estimated to have risen from 29 percent in 2018 to 34 percent in 2019.
This bears testimony to the fact that wealth remains concentrated in the hands of the few elites at the expense of the majority poor living in poverty and deprivation.
What is most worrying is the fact that the bank just highlights this anomaly and fails to provide clear and practical solutions.
This is despite the fact that income inequalities promote other forms of disparities which remain visible in the health and social services sector, depression of aggregate demand and negative economic growth which was estimated at negative -6,5 perecnt in 2019.
Unless and until the central government put in place measures to redress these liquidity irregularities, inequality amongst citizens widens and economic governance in general continues to perpetuate confidence deficit in citizens and investors whilst the market continues to be controlled by the few rich.
The economy is still suffering from the aftermaths of austerity measures and the liberalisation of the foreign exchange market which characterised the 2019 fiscal and monetary policies respectively.
It is worrisome that the monetary policy is reactionary in nature rather than being proactive.
Whilst the bank is supposed to set the pace for the financial services sector, it remains anchored on existing macroeconomic distortions associated with exchange rate and price instability.
The economic crises that we face as a country are man-made having emanated from the economic reforms that the country adopted in 2019.
This eroded public confidence on both the monetary and fiscal policies in Zimbabwe.
The trust deficit manifests through speculative behaviour by the citizens as they safeguard their hard-earned savings following the deliberate erosion of people’s savings when the government de-dollarised.
Public mistrust is a key feature in governance systems that shun citizen voice in national development.
It is, therefore, critical for one to note that effective communication in promoting the eroded public confidence in the fiscal regime must be coupled with implementation of policies consistently as well as review of the previous policies on forward planning.
The injection of additional cash in a bid to address cash shortages might be detrimental if the root causes of cash shortages, including monopolisation of the currency market ,are not addressed.
Under the de-dollarisation framework, the monetary policy statement anticipates that the country will need five years to fully de-dollarise.
The question which, therefore, arises is how much the citizens will have to bear between now and the next five years as citizens continue to waver between two or more currencies with one being the legal tender, but nonetheless has lost public confidence.
This is a critical issue to be addressed and yet the government is reluctant to consider it an issue of emergency.
The 64 percent decline in foreign direct investment is coming at a time when the country is offering generous investment incentives.
This is clear testimony that tax incentives are not the only factor for attracting foreign direct investors.
The government should, however, improve the political, economic and technological factors necessary for attracting investors.
Public trust remains central in building the necessary confidence at national and international level necessary for tackling the country risk factors.
Without information, citizens will not be able and willing to engage on the rebuilding process that will set the country in a development trajectory.
The bank must therefore develop a clear medium to long term framework that drives the economy with clear policy coordination with the fiscal policy.
Expert economist, John Robertson
The monetary policy statement is addressing all the symptoms of the underlying problems — shortages of foreign currency, employment, investment, food, fuel, electricity and liquidity, plus falling purchasing power, unmanageable school fees, failing medical services, poor roads and extremely bad water supplies.
Every one of these problems stems from the destruction caused, first to agriculture, then to manufacturing, transport, banking, export revenues, employment, debt service and all our international relations.
The underlying problems caused Zimbabwe to fall from one of the most developed countries in the Third World, or Developing Countries list, to being one of the poorest countries on Earth.
So, these are the problems we should be trying to fix, not all their downstream effects.
Revive commercial agriculture by putting the land back onto the market and encouraging investment in every sector.
That would start to fix the crippling damage caused 23 years ago when ownership rights were destroyed. So, why don’t we do it?
Executive Member of the Pan African Chamber Of Commerce, Langton Mabhanga
The glaring reality that surfaces in the monetary policy is that the treasury is under pressure owing to the acute shortage of foreign currency.
The forfeiture of the gold market by Fidelity to the black market under their nose and watch courtesy of the prevailing weak policy and porous practices, at first instance smacks an integrity question and justification of their existence.
Is the whole nine or so member MP committee coy to the task of ensuring that our gold serves national interest.
If our gold can’t feed our people at a time as this to flourish foreigners then what are some of our institutions good for?
The RBZ governor bemoaned the over reliance on imports even for horticultural produce.
That cry must be matched by deliberate strategy to ensure capacity for production. World over agriculture is supported. South Africa supports Agriculture and that is why we import from them.
The funding priorities must be aligned with national priorities which according to President Mnangagwa are growth and productivity.
I wish to reiterate that printing money of whichever quantum of denominations will not fix our economic woes.
Is the whole MP Committee not worried about the unbridled deployment of heavy RTGS balances accumulating in bank profits which could be a significant driver for inflation?
Is there ground appreciation of how the grassroots continue to austere despite assurances by the minister of Finance that we were past austerity mode.
The MP did not rise to the tempo of President Mnangagwa’s trajectory to dedicate the second year of his mandate to lift the economy in growth and productivity.
More colourful creativity and imagination is required to excite the nation to rally around the President’s agenda for productivity and economic growth.
We applaud the governor and the MP Committee for the steadfast determination to maintain a tight grip on base money to curtail inflation.
They will be urged that the same effort could be directed towards the hot money in heavy RTGS profits residing in banks.
Deployment of such money towards production would boost productivity and stabilize liquidity and accelerate economic growth.