The Sunday Mail
Oliver Kazunga
The GOVERNMENT has set up a committee to control excess money in the market, reported to be one of the major factors driving exchange rate volatility and inflation, according to Finance and Economic Development Deputy Minister Mr Clemence Chiduwa.
This comes amid reports that some Government contractors and suppliers were allegedly using part of the money to attack the national currency, resulting in the authorities employing measures such as value for money audits and staggering payments in both local and US dollars.
Through the Liquidity Management Committee, which comprises officials from the Reserve Bank of Zimbabwe (RBZ) and the Ministry of Finance and Economic Development, Government will ensure requestfo funds by ministries, departments and agencies, Treasury will release the funds on condition that the cash is available.
Addressing the Confederation of Zimbabwe Industries (CZI) 2023 Annual Economic and Business Outlook Symposium in Harare on Wednesday, Deputy Minister Chiduwa said the Government had made a resolution to run a cash flow budget to ensure expenditure did not go beyond collected revenues.
“I have heard quite a number of people saying the Ministry (of Finance and Economic Development) accepts to make payments but then later on they don’t honour. It has happened once but going forward we now have a Liquidity Management Committee. The Liquidity Management Committee ensures that whatever is requested by the ministries, we only honour on condition that the cash is available.
“This again is going to assist us in terms of managing the liquidity that is given out,” he said.
Deputy Minister Chiduwa said Treasury had collected $2,04 trillion in revenue as at September 30 2022, with expenditure amounting to $2,2 trillion, adding this reflected that the Government was aligned to what it set for itself in the macro-economy.
He said the Government had also come up with an open-market operation to mop-up excess liquidity in the market after payment of its contractors and service providers.
The open-market operation entails the use of instruments such as treasury bills of 90 days and 180 days where businesses with Zimbabwe dollars buy the bills.
Alternatively, corporates and individuals with local currency can also buy the gold coins, which are used as a store of value and can be sold back to the Government after 180 days.
“We have come up with a policy to ensure that whenever we make huge payments at the same time, we are also going to unleash our open-market operation.
“This will make sure that if we are going to release $40 billion next week, our open market operation will also be in the market at the same time to make sure that we mop-up any excess liquidity,” he said.
“We have seen that if you look between November and December 2022 to January 5 this year, there was quite a lot of cash in the market because we were paying our wheat farmers, contractors and all that. But from January 5 up to now, there are no Zim dollars in the market and we have made sure that at any point in time we also do our open-market operation.”
Mr Chiduwa said the Government had declared that as the country moved towards the attainment of an upper middle-income society by 2030, the economy should be private sector-led but the business community was not actively playing the supposed role.
“As CZI you have a very critical role to play with regards to the realisation of Vision 2030. It is very clear in the Vision that the growth and development of this country is going to be private sector-led.
“Unfortunately, in quite a number of cases, our private sector is risk averse . . . and what we have now is a situation where the public sector is actually playing an active role where the private sector is supposed to be.
“We are having a situation where it appears the Government is now crowding out the private sector and we are saying the private sector should come to the table and play its role. But then this is where the issue of monetary policy and fiscal policy comes in,” he said.
In his address, RBZ governor Dr John Mangudya said on the monetary policy front, authorities were proceeding with a tight monetary policy stance to promote macro-economic stability, growth and resilience from external shocks caused by factors such as the Covid-19 pandemic, earthquakes and the geo-political conflict between Russia and Ukraine.
“As the Central Bank, we expect inflation to remain low . . . we are going to continue with our tight monetary policy and as we have said, we have not moved away from the monetary targeting framework in the reserve money,” he said.
Dr Mangudya said the monetary authority had also introduced the gold coins to hedge against inflation, which is currently on a downward trend.
In response to domestic inflation dynamics and the pass-through effects of increases in energy, food prices and supply chain cost pressures on the economy, the Government tightened fiscal and monetary policies.
The interventions have curtailed the rapid depreciation of the Zimbabwe dollar against the United States dollar on the parallel market that previously was the major driver of domestic inflation.
Resultantly, month-on-month inflation receded from 30,7 percent last July to 1,1 last month while annual inflation dropped from 285,1 percent in August last year to 229,8 percent. Fiscal and monetary authorities have set a month-on-month inflation target range of between 1 percent and 3 percent by the end of the year.
