The Sunday Mail
Government will not let-up on implementing fiscal and monetary measures to contain resurgent inflation and tame Zimbabwe dollar volatility, Finance and Economic Development Minister Professor Mthuli Ncube has said.
A package of measures unveiled recently include putting a lid on money supply growth, rooting out market indiscipline and militating against the impact of imported inflation as a result of the Russia-Ukraine conflict.
Annual inflation currently stands at 131,7 percent in May from 94,6 percent a month earlier.
Addressing a Political Actors Dialogue (POLAD) Currency Indaba on Thursday, the Treasury chief said, among other interventions, Government had made a commitment to ensure zero growth in broad money supply.
“So, growth in money supply is well contained in terms of M0 growth, but we noticed that perhaps when it comes to broad money, that growth has remained positive and that has partly contributed to part of the currency volatility that we have seen; so we are dealing with that.
“On the monetary front, we have a strategy of containing growth in money supply, both reserve money and broad money,” said Minister Ncube.
While the economy remains buffeted by volatility and rising inflationary pressures owing to supply chain disruptions caused by the conflict in Eastern Europe, he said, the economy remains in sound health.
Authorities would not abandon the current dual currency regime as dollarising would effectively wipe out “the banking system”, company balance sheets and pension funds.
Conversely, it is feared strictly using the Zimbabwe dollar only would present challenges that include the need for banks to convert all US dollar reserves held by exporters to Zimbabwe dollars while also putting the country under pressure given the limited forex reserves position.
To ensure that the Government lives within its means, the budget deficit would be restricted to less than 1,5 percent of gross domestic product (GDP).
Payments to various contractors involved in the numerous infrastructure development projects are currently being staggered to avoid possible impact on the Zimbabwe dollar.
“We are spreading out payments to contractors to minimise the impact of this liquidity on the exchange rate. But, also, we have decided to split the payments to contractors so that 50 percent is domestic currency and the other 50 percent is hard currency.”
A liquidity management committee has since been established to keep an eye on the amount of money in the economy, while measures have been put in pace to promote the desirability and use of Zimbabwe dollar for local transactions, including increasing the scope of payments in local currency for taxation, duties and mining royalties.
Last month, Minister Ncube added, Government announced a number of interventions to address currency volatility, which entailed a temporary ban on bank lending, direct payments for imported goods from source markets and tighter trading conditions on the stock market.
A 4 percent tax on intermediated money transfers conducted in US dollars was also introduced.
“We noticed that there was quite a bit of speculative lending within banks; corporates basically diverting some of the liquidity, not towards the real sector, but towards driving parallel market rate upwards and some of the liquidity finding its way into the equities market and creating an asset price bubble,” he said.
The equities and currency bubble driven by speculative funds from banks had to be “pricked”, he said, hence the brief ban on bank lending, which allowed the central bank to introduce measures to limit avenues through which speculative liquidity enters the market.
Government says further interventions are in the offing to ensure monetary policy becomes effective in dealing with exchange rate volatility, which is also impacting on prices of basic commodities.
To cushion consumers in the interim, basic commodities can now be imported duty-free. Speaking at the same meeting, Reserve Bank of Zimbabwe (RBZ) Governor Dr John Mangudya said recent currency volatility was largely being informed by past experiences with hyperinflation.
As a result, economic agents and individuals prefer holding US dollars to local currency to hedge against the expected loss of value of the Zimbabwe dollar.
“Currency volatility is a symptom emanating maybe from the fear factor of past experiences before dollarisation, but why should we live in the past?” he said.
“We need to change our arbitrage business models; we don’t want to be blaming people, but we are blaming the humanity in people.
“It is very unfair that a businessperson we have sold foreign currency to at willing-buyer, willing-seller rate … goes and sell the money at a higher rate. Is that fair? So the issue we are seeing is about behaviour.”
Writing on his blog, economist Mr Eddie Cross said Zimbabwe needs to revert to strictly use the local currency and convert all export and forex receipts into local currency.
“The solution is very simple, like all good ideas. In all our neighbouring countries, Zambia, SA, Mozambique, Malawi and Botswana, the currency of choice is the national currency, the pula, kwacha and the rand. If you want to do business, you go to a bureau de change or a bank and you change your own currency into theirs and you are set to go,” he said.