Reclaiming the economic levers

24 Feb, 2019 - 00:02 0 Views
Reclaiming the economic levers

The Sunday Mail

Editorial Comment 

The local market waited for what seemed to be an eternity for the Monetary Policy Statement (MPS), which was eventually delivered on Wednesday.

Cynics laughed and jeered, but gold-collared executives in industry cheered. As what the fiscal and monetary policies continue to say, Zimbabwe began currency reforms in October last year, which makes last week’s monetary policy a sequel to a pre-determined plan to restore economic stability.

For the layman, “economic stability” and “currency reform” would mean having money that inherently has value and, by implication, buying power.

It means stable prices on shop-shelves and a predictable pricing regime that makes the consumer confident enough to save their hard-earned money.

And this journey began with the separation of US dollar accounts from electronic money (RTGS) balances, the bulk of which was created through the disproportionate issuance of  Treasury Bills.

Essentially, the country was borrowing from the future in the hope that it would be sufficiently able to generate money in future to repay these domestic debts. This is why the Reserve Bank of  Zimbabwe (RBZ) – before the momentous political transition to the new political administration in November 2017 – had flagged the need for a scientific or actuarial evaluation to determine the exact stock of TBs that the economy could support.

The  central bank, justifiably, was worried. By June last year, there was more than $9 billion that was circulating in Zimbabwe, of which a pitiable $379 million were bond notes and coins.

As classical economics will dictate, the bad money, not tethered on any meaningful value, began to chase after the good money – the US dollars and the bond notes that were anchored by the Afreximbank facility. Naturally, bond notes become scarce and the greenback disappeared.

But, observably, since the bold decision in October last year to separate accounts, the US dollar has been flowing back to the system, rising from US$130 million to US$600 million – a whopping US$470 million growth – in the past five months. And last week, authorities made yet another tough call: liberalising the exchange rate between the domestic stock of money (RTGS and bond notes) – now called RTGS dollars – and the US dollar through introducing an inter-bank market.

Economists rightfully called the decision “brave”.

Yes, liberalising the exchange rate was particularly brave because it risked creating volatility in the market and the attendant price hikes. Pensions, too, could have been wiped out by one fell swoop.

However, it seems the fiscal and monetary authorities have done extensive pre-mortem work by putting safeguards to protect pension savings. (Read our lead story in the business section).

You would imagine that it was taxing work, which explains why the MPS came late. That the exchange rate has been stable for the past five months, even after the liberalisation of the exchange rate, demonstrates the telling impact of fiscal discipline and prudential management of the new political administration.

It highlights that Government is being successful in putting the economy on an even keel. There are no signs that the authorities will relent, at least any time soon.

They have vowed to continue to be disciplined. RBZ Governor Dr John Mangudya instructively said last week: “To anchor price stability, the (central) bank shall aggressively intervene in the market to sterilise liquidity so as to help contain inflationary and exchange rate pressures. The bank will also implement a monetary targeting framework, with monetary aggregates as operational targets for monetary policy. Under this framework, the bank will appropriately target growth in base money with a view to help stabilise and anchor macroeconomic stability.”

The imminent introduction of a bank rate – where the central bank sets the key rate for the market – including the already existing statutory reserve requirements – which is now used to mop-up excess money from the financial system – indicate that the RBZ is slowly regaining the instruments to influence the direction of the market.

Put simply, contrary to conditions that existed in a predominantly US-dollar multicurrency environment, where the apex bank effectively had its hands tied behind its back, monetary authorities can now effectively intervene to control the amount of money in the market.

In essence, this is the hallmark of the President Mnangagwa-led administration: it is not afraid to make “bold” and “tough” decisions. Zimbabwe has been kicking the can down the road for a long time for fear of the pain that was inherent in making the much-needed structural adjustments to the economy.

Leadership, as President Mnangagwa often says, is about taking the people were they ought to be, and not where they want to be.

An encouraging picture is already beginning to emerge.

Like fitting the pieces of a jigsaw puzzle, Zimbabwe is well on its way to sustainable macroeconomic stability, which is the springboard for any economic development.

Slowly, but surely, we are getting there.


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