The Sunday Mail
Senior Business Reporter
LEVERAGING the recent fiscal and monetary interventions as well as the disbursement of Special Drawing Rights (SDRs) will remain key to anchor and buttress exchange rate stability, Treasury has said.
Finance and Economic Development Minister Professor Mthuli Ncube said this during the recent Confederation of Zimbabwe Industries annual conference in Harare.
The Government recently rolled out measures that include introducing gold coins to mop up excess liquidity and provide an alternative instrument to store value, including hiking the bank policy rate from 80 to 200 percent to discourage speculative borrowing.
Treasury has since announced that about US$145 million from the US$960 million SDRs received from the International Monetary Fund will be drawn down this year, with social services and productive sectors expected to benefit the most.
“As Government, we are committed to maintaining stability of the exchange rate and macro-economic stability,” said Minister Ncube.
“On the monetary front, we will make sure we keep a tight lid on liquidity so that money supply growth is restrained both in terms of M0 and M3 growth.
“And then we will make sure that we put in the right incentives to support you as a manufacturing sector so that you can improve your product complexity and diversify your product mix.”
The Government recently launched a US$30 million facility for the horticulture sector. An industry support fund of about US$15 million to retool is expected to be launched soon.
Treasury has also earmarked US$10 million for housing infrastructure development, as well as another US$10 million to support development of gold centres across the mining regions.
“As Government, we are confident that the resources from the SDRs will go a long way in promoting the sustenance of a stable macro-economic environment going forward,” added Minister Ncube.
Economic commentator Mr Trust Chikohora said the shortage of the Zimdollar on the market and increase in demand for local currency can be explained by a number of factors.
“The gold coin was introduced as an alternative store of value because businesses and individuals had been using the US dollar as a store of value,” he said.
“Now the gold coin is being sold even in Zimbabwe dollars and it is an alternative store of value.
“So, corporates and individuals have gone for the gold coin.”
High interests had helped deter borrowing for speculative reasons, while an investigation on contractors that were diverting payments to the parallel market had also helped foster stability.
“So, all these factors (interventions by Government) have led to the stabilisation of the Zimbabwe dollar against the US dollar on the parallel market. In fact, the parallel market rate dropped from around US$1:$700 now, with the official auction rate at $604. There is some convergence that is now happening between the parallel market rate and the auction rate, something we intended to see.
“As a result, even some prices of basic goods have begun to fall, which benefits people and the economy at large,” he said.
Economic analyst Ms Wendy Mpofu said it was imperative for monetary authorities to anticipate future challenges that could destabilise the economy.
“What’s now critical at this juncture is that the Government should not relax . . . In fact, stability of the exchange rate and the macro-economic environment at large is sustainable going forward if the Treasury commits itself to monitoring any negatives that may threaten the prevailing climate,” she said.