The Sunday Mail
The Reserve Bank of Zimbabwe (RBZ) will this week review the suspension of bank lending that was recently announced, as it moves to investigate contractors on allegations they have been fuelling the parallel market.
In a no-holds-barred interview last week, RBZ Governor Dr John Mangudya said the temporary suspension was a necessary inconvenience in their quest to establish the cause of the current exchange rate volatility and attendant rising inflation.
He said those that were critical of the move did not appreciate the fact that some companies were borrowing funds and offloading them on the parallel market.
“The suspension will be reviewed next week (this week),” he said.
On May 7, President Mnangagwa announced a raft of measures to stabilise the Zimbabwe dollar and restore sanity in the market.
These included the suspension of lending by banks to Government, corporates and individuals to arrest the growth in money supply.
Without divulging much, the central bank chief confirmed that investigations so far had given valuable pointers.
“What we have found out is what I have told you, that other corporates were heavily borrowing from the market or from the banks for the purposes of using that money to purchase their products and manipulate the exchange rate, which is called currency attack,” said Dr Mangudya.
“They attack the currency so that it depreciates, then they pay back their loans. In fact, they make a profit from borrowing. Because the adjustment in the exchange rate is higher than the interest the bank will get. This is why the interest rates route was never going to work for these guys.
“Because even if you put the rate at 80 percent, the rate will depreciate much faster even if you put it at 100 percent or 150 percent.
“As I read from Professor (Steve) Hanke, who said you need to increase the rate to 166 percent, even if you put at 166 percent, they will send the parallel market rate to much higher than the value of the interest.
“By so doing, you continue to chase your tail because they are moving the target. Because their job is to attack the currency.”
The central bank indicated that it will also probe contractors engaged by Government for major infrastructure projects such as roads and dams to establish the veracity of claims that they were offloading large amounts of money onto the black market.
“That is why I have said let’s have a ceasefire for now in terms of lending, then we see if they (the contractors) are the ones (moving the rate). Let’s also investigate them to see whether their invoices are correct or whether they are fair, or whether they are pricing using the willing-buyer, willing-seller rate.
“In any case, we also understand that the Government is also paying part of those contractors in foreign currency so that the appetite for foreign currency is reduced, because they will be having foreign currency from Government to buy their bitumen, spares, tools and fuel that they require for the roads. So it means the balance that they get in local currency they should be able to keep it in this country. But, if they want to preserve value by going to sell it again stoking inflation, then they are the wrong people who are working for us,” he said.
He said if that was the case, it would be unfortunate as they would be biting “the hand that feeds them and yet tomorrow they will want to eat again”.
Industry lobby groups such as the Zimbabwe National Chamber of Commerce have indicated that the money paid to contractors might be finding its way onto the parallel market.
“The Zimbabwe dollar being paid by Government to the contractors is ending up chasing the greenback on the parallel market as they seek to preserve value,” said ZNCC in its submissions to the Ministry of Finance and Economic Development and to RBZ.
Dr Mangudya said investigations were also ongoing to establish other potential source of funds flooding the market.
“Maybe we are going to look for other sources. Are there any crypto currencies in the economy which are being created or is there someone creating money who is not the central bank or the banks. So that at least we move the blame from the banks and the Reserve Bank to those other people.”
The country’s economy, which is largely expected to grow by 5,5 percent, has in recent months experienced increased currency volatility and rising prices of goods and services, which prompted Government to move in with fiscal and monetary policy interventions to arrest the situation.
Dr Mangudya said some of the measures had already begun to bear fruit.
For instance, the willing-buyer, willing-seller system had witnessed millions of dollars traded.
He challenged Zimbabweans to desist from negativity as this affected progress.
“This economy is a sentiment-driven economy. It’s a negative perception-driven economy. So we move not by faith but by sight … What we need in Zimbabwe is a bi-partisan approach. This idea of having a partisan approach to economics does not work …”