The Sunday Mail
George Guvamatanga
“I think a currency change and a currency reform, by its very nature, is a very sensitive one. So it’s not one kind of change that you would actually go to the market and say, ‘on this particular day we are going to change the currency’.”
I think the issue is, for the first time in decades, Zimbabwe is going through real and meaningful reforms and transformation, and something that was not done in decades.
And when I say real, I am talking about opening up of the media space; I am talking about the ongoing political reforms; I am talking about the fiscal consolidation that we have witnessed in the past six or 10 months; and I am also talking about the Cabinet having approved the repeal of the much-criticised Aippa (Access to Information and Protection of Privacy Act) and Posa (Public Order Security Act).
So there is quite a lot happening in Zimbabwe at the moment on both the economic and the political front. But I will talk more on the economic front.
Zimbabwe dollar
I think the measures we have implemented for the past eight months are clearly articulated in a document which we issued, or a plan which we issued last year, called the Transitional Stabilisation Programme (TSP). I think that programme clearly articulates what we want to achieve as a Government for the period October 2018 to December 2020. We spoke about fiscal consolidation; we spoke about removing the distortions in the economy and we also spoke about — within the same document — political reforms.
But one of the major issues that was articulated was currency reforms.
And I think the base for currency reforms really is the fact that the Government has now managed to take care of its fiscal position, and the Government is no longer running huge fiscal deficits of the past. And for the past six months of this year, we have actually been running a primary budget surplus. And we all know that in any economy, inflation or any other challenges on the exchange rate are caused by the creation of money.
The fact that on a very well-managed basis for the past 10 months we have been able to increase our revenues and arrest wasteful expenditure meant that we have now created a solid base to allow us to introduce a domestic currency.
I think the US dollar, while it served its purpose during the early days of the multi-currency system, was now stifling growth, making local companies uncompetitive, but more importantly, creating a two-tier economy, which was now making it very difficult for those without access to the limited US dollars to transact in Zimbabwe.
So we actually believe that the fact that we have now been able to create a stable fiscal environment, we now needed the other legs on the monetary side to come into play, because with the US dollar we had no chance whatsoever to actually bring in the full array of monetary policy tools that are needed to manage prices, to manage inflation and to manage the exchange rate.
Political Support
The TSP, as I clearly articulated, which is the economic plan that we are running until 2020, has the full support of the President of the country (Emmerson Mnangagwa); it has the full support of the Cabinet of the country, and not only that: you will remember that early this year we also signed up to the Staff-Monitored Programme (SMP) with the International Monetary Fund (IMF), which again has the full support of everyone in Zimbabwe.
But more importantly, I think the lead for the economic reform is actually His Excellency, the President of Zimbabwe, supported by the Minister of Finance, Professor Mthuli Ncube — I think these are the two main drivers of the economic reforms in the country. And there is full support from everyone in Zimbabwe of the current measures that we taking.
I think there is now a very consistent track record that support where we have been able to do the right things for the economy without any political interference whatsoever.
In fact, we have been able to do what we have done with lots of political support.
Look, there is nowhere in this world or in any country where you can wake up one day and decide that you want to review your fuel prices by over 200 percent without political support; that would not be possible at all.
And there is no other country in the world where, again, you will come back two months later and say you want to free-float your exchange rate — from where it was trading at par with the US dollar and opening up to the current rate of around 8 — without political support.
I think if you just look at the extent of the transformation, if you look at the extent of the exchanges, I think it is very clear that those two major key elements cannot be achieved without political support. . .
On the political side, the repeal of Aippa, the repeal of Posa, which are some very old remnants of the old regime, again shows the progressive nature of the new Government and the support that is there to actually reform, transform and then grow a new Zimbabwe economy.
Shocks
As I have indicated that we do have a SMP with the IMF. We have been in very constant discussions and consultations with the IMF since last year — I think since last quarter of last year. And the measures that we have taken carry the full support of the IMF. But when you talk about other developmental partners and other economic players in Zimbabwe, I think a currency change and a currency reform, by its very nature, is a very sensitive one. So it’s not one kind of change that you would actually go to the market and say, ‘on this particular day we are going to change the currency’.
So if there are market players who are saying they were caught by surprise, actually that was the intention because otherwise if we had announced it, you would start creating a lot of arbitrage and lots of speculation in the market.
But I think the key players, the key developmental partners — whom we have been working with, who have been supporting our transformation in terms of this currency reform— were very much aware and very much in support, and had an opportunity to input into the process in terms of how best we can move away from a multi-currency system to the current mono-currency system.
Volatility and upheaval
We are very much aware that this kind of change, this transformational change will cause volatility and will cause upheavals in the economy. We are very much aware of the difficulties that our people are facing as the market finds its level. I have said in the past that we are very much aware of the difficulties, but the fact that this is difficult does not mean that it is wrong: it is the right prescription that the country needs for us to be able to breed a strong economy for the future.
So we are very much aware of the volatility in the economy, but we know that the economy is rebasing, the economy is finding its level, but it will not happen overnight.
We are expecting that prices will stabilise, we are expecting that inflation will come down.
I think the Minister (Prof Ncube) has also made a call for the private sector to also look at reviewing and increasing wages for workers in the private sector.
As Government, we are currently in negotiations to make sure that we cushion the workers against the volatility and upheavals that are being caused by the current changes, so are aware of the difficulties that our people have been facing, but it’s part of the change.
It’s not going to be easy, but we certainly believe that we are setting the economy for growth and creating an inclusive economy that everyone will be proud of as we move forward.
Finance and Economic Development Ministryr Permanent Secretary George Guvamatanga was speaking during an interview with Godfrey Mutizwa of CNBC Africa. CNBC Africa is a pay television network that is owned by CNBC and Africa Business News.
