'Tougher times ahead if monetary policy disappoints'

HARARE -  Zimbabweans should brace for tougher times ahead if the monetary policy fails to address the fundamentals in the economic quagmire.

The monetary policy statement (MPS) which should have been presented by end of January has allegedly been stalled by the discord between Reserve Bank of Zimbabwe (RBZ) governor John Mangudya and Finance minister Mthuli Ncube over policy issues around currency reforms.

Fears continue to arise while incanting speculations of looming disastrous currency reforms that await the transacting public.

Zimbabweans are already battered in the throes of shortages of cash and basic commodities and price vexations due to currency distortions

At the same time salaries pegged in Real Time Gross Settlement (RTGS) have enormously devalued resulting in widespread outrage which has led to some businesses shutting down owing to the lack of foreign currency in the country.

Observers have, however, said Zimbabwe’s problem is a currency quagmire – which if resolved, will address the rest of the symptoms obtaining in the economy.

Economic analyst Brains Muchemwa told the Daily News that the absence of a market- determined exchange rate has been at the core of upsetting pricing and financial stability for some time.

“While the market has already moved ahead of policy makers, the lethargic policy response has only but created more bottlenecks,” Muchemwa said.

The country’s economy has been in trouble due to currency distortions causing many businesses to demand the greenback and peg all commodities against the US dollar.

 “At a time the economy has started to shed jobs and curtailing production on the back of such challenges, it is prudent for the policy makers to be proactive and not wait to act until the situation gets worse before intervening,” Muchemwa added.

The monetary policy is an economic policy laid down by the central bank to achieve the macroeconomic objectives involving management of money supply and interest rate, inflation, consumption, growth and liquidity.

The resolutions are important for an economy to spur growth.

In other countries, the monetary policy is aimed at managing the quantity of money in order to meet the requirements of different sectors of the economy and to increase the pace of economic growth.

In Zimbabwe’s case the Finance ministry has had to enact committees to even allocate foreign currency which has stalled industrial growth resulting in some producers closing shop.

On their part, businesses’ expectation, although in a tripartite sense, is a monetary policy that promotes re-industrialisation bringing harmony on currency resources in the market.

 “It must strengthen internal resource mobilisation through supporting local production such as small to medium scale gold mining, production and productivity innovation and home grown entrepreneurship realm,” National Business Council of Zimbabwe president, Langton Mabhanga said.

Companies that have remained since the hyperinflation and economic meltdown of 2008 are battling to recapitalise and acquire modern technologies for competitive industrial capacity.

“The MPS must spell out a clear, comprehensive and robust road map, with milestones, to currency reforms to stave off the unfolding rumour mill and speculation.

“Policy must be strongly focused on confidence building and upstage international transactional diplomacy in the wake of growing global political gimmicks,” Mabhanga added.

United States-based economist and currency expert Steve Hanke echoed saying without the right policies Zimbabweans are in for a tough time.

 “At this rate, investment will dry up for Zimbabwe. Only if the government gets serious about fixing its monetary and fiscal problems can the much-needed investment come back in full force.

“By reducing the budget and eliminating bond notes and RTGS, normalcy can return to Zimbabwe,” he said.

Responding to a question on what needs to be done Hanke said: “Dollarisation is the correct path for Zimbabwe today. What currently exists in Zimbabwe is not dollarisation. The government has used every trick in the book (such as bond notes and RTGS) to avoid the budget constraints imposed by orthodox dollarisation.

“Ncube does not want dollarisation because he knows that the only way Zimbabwean officials can continue spending and receiving money at current levels is by committing fraud against the public by issuing a new Zimbabwe currency. The creation of a new local currency is a recipe for disaster.

“If the Finance ministry wants to bring the economy back to normal, it must announce that Zimbabwe will eliminate RTGS and bond notes from the system and by reducing the budget by 1 billion USD annually over a five-year period so that bond notes & RTGS can be redeemed at par with the US dollar without the government committing fraud against ordinary citizens who did nothing wrong but follow the law”. 

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