By Prosper Chitambara
THE Mid-Term Monetary Policy update indeed contained wide ranging and radical measures that will have far reaching consequences on almost every fac
et of the Zimbabwean economy.
It has to be said from the outset that the monetary policy alone is not the panacea to the economic ills currently bedevilling the economy. The monetary policy alone cannot single-handedly turnaround the economy.
It would seem as if the Reserve Bank is fighting a lone battle while other crucial key government protagonists have gone to sleep. Ideally the monetary policy should be underpinned by a nationally-owned development vision and strategy for it to be effective.
This however does not seem to be the case in Zimbabwe as there is no such nationally-owned development vision and strategy for starters and more importantly the monetary policy has been reduced to a fire-fighting instrument.
There is a need to fully leverage the synergy and complementarities between the monetary policy on the one hand and the fiscal policy and the National Economic Development Priority Programme (NEDPP) on the other hand.
At the moment there is an obvious disconnection between the aforementioned policy and strategic instruments. It would appear as if the policymakers do not seem to be singing from the same hymn sheet as there is an obvious lack of esprit de corps and unity of purpose among the key economic stakeholders.
There also seems to be a lot of confusion among most people as to the scope and extent of the monetary policy. While conventional and classical economic wisdom would confine the jurisdiction of the monetary policy to interest rates, money supply and financial sector stability, in Zimbabwe the mandate of the Reserve Bank of Zimbabwe (RBZ) has been extended so that it fully gives expression to the developmental aspirations of the economy. While this is not wrong, this has unfortunately created unnecessary animosities and confusion as to who is ultimately responsible and accountable, especially where parastatals are concerned.
The anti-corruption drive of the RBZ though laudable has unfortunately not been fully complemented by the government.
While the government would claim that it set up the Anti-Corruption Commission as well as a government ministry responsible for anti-corruption in an effort to escape culpability, it would be helpful to note that to date the work of these two institutions has remained largely academic and sterile as the incidence of corruption especially in “high places” has exponentially risen while no major prosecutions have been instituted.
It has also been realised that central bank autonomy is very crucial in dealing with the problem of hyperinflation. In Zimbabwe, however central bank autonomy has been seriously impaired by government’s over-reliance on money-printing financing to defray its largely consumptive expenditure.
Countries that have managed to arrest hyperinflation in the past such as Argentina, Bolivia and Mexico, among others, managed to achieve this on the back of largely independent central banks that were very strict with the wayward expenditure patterns of their governments.
Revoking licences for all the MTAs
At face-value this measure would appear to be too stringent not least because of its big-bang nature and also the loss of employment that will result therefrom. It would appear as if this measure was motivated by the need to curb the prevalent high levels of illegal activities some of these MTAs were engaging in, defiance of the stringent exchange control regulations.
However, it would be difficult to fully appraise the effects of this measure especially since there is a dearth of data and information as to the benefits that were accruing to the economy in terms of foreign exchange inflows. It seems the controlled and stagnant exchange rate has discouraged most Diasporas from transferring their funds via the MTAs.
Annual review of banking licences
This measure has merit especially in view of the need for discipline in the financial sector. The financial sector is the lifeblood of the overall economy and if it sneezes the whole economy cannot avoid catching a cold. Therefore, there is need to ensure that the financial sector remains stable, safe, and secure and engages in lawful activites. New capital adequacy ratios and the rising incidence of money laundering in a number of developing economies make it imperative for the central bank to regularly review the activities of financial institutions. In addition the introduction of a five-year financial sector stabilisation programme should also provide a safety net to financial institutions.
Stringent monitoring of ZSE
It is important to note that the Zimbabwe Stock Exchange is a crucial player in the financial services sector that can play a very crucial role in the economic turnaround effort if it is properly monitored and supervised.
This is a positive measure especially in light of the fact that the ZSE has become a safe haven for speculative activities that do not add value to the real productive economy and are stepped more on the verges of illegitimacy.
It is therefore important to curtail these speculative tendencies on the ZSE so that it can play its crucial role of mediating between savers and borrowers effectively by becoming more production-oriented.
However, this needs to be done in a way that does not result in the mass exodus of actual and would-be investors.
This can be viewed as part of the anti-corruption drive. This is positive, however the cancer of corruption has become so endemic and systemic that its elimination can only be sub-contracted to a few stakeholders. There is a need for a multi-pronged approach that is properly coordinated as opposed to the largely disjointed measures that are currently prevailing.
Government commitment which is a key ingredient in the fight against corruption has indeed been the missing link. While the government has introduced the Anti-corruption Commission and a ministry responsible for anti-corruption, these have however remained largely toothless bulldogs as the incidence of corruption continues to increase.
Zimbabweans recall the way the National Housing Scheme, the War Victims Fund, the land redistribution exercise were abused by well-placed persons. With respect to these, Commissions of Inquiry were set up and reported on the abuses, yet no action has been taken against the perpetrators.
The abuse of the land reform exercise resulted in three commissions being set up, one led by Flora Buka, the second by the former Chief Secretary to Cabinet, Charles Utete and the last by Minister Didymus
Mutasa. These provided the names of the culprits, and yet no action has been taken to bring them to book.
Export incentive scheme for exporters
The RBZ needs to regularly review the exchange rate to make sure that it reflects the prevailing economic and market conditions on the ground. Without doubt the exchange rate is a major incentive for exporters and it needs to be regularly reviewed. For as long these exchange rate distortions remain then it is highly unlikely that there will be a significant increase in the level of exports.
Overnight accommodation interest rates are the benchmark interest for the economy as they have a direct impact on the other interests that banks charge. The increase in overnight accommodation will surely affect the cost of production for most business, especially those that are highly leveraged. This will likely further stoke the inflationary pressures.
Restriction of central bank financial support to parastatals and local authorities.
This has positive ramifications especially as far as inflation is concerned. A major source of inflationary pressures has been excessive money supply growth, especially with regards the financing of government consumptive expenditure as well parastatals and municipalities funding.
The underlying problems of parastatals need to be addressed in a holistic manner, which goes down to the root causes of their perennial woes.
The majority of our parastatals suffer from a combination of poor corporate governance, political interference by parent ministries and government and lack of accountability. Without addressing the aforementioned challenges once for all the problem of parastatals will continue to recur.
While the some of the measures that were announced in the Mid-Term Monetary Policy update are positive, they unfortunately fall short of what is required to revive the economy as they does not fully address the underlying challenges at the root of the crises.
There is need for a comprehensive, holistic framework to reduce money supply, aligning fiscal expenditures to budgeted levels, enhanced productivity across sectors of the economy, enhanced agricultural productivity to reduce food inflation, the signing of a social contract, addressing the perennial problems of parastatals as well as reducing the high levels of political polarisation obtaining in the economy.
* Chitambara is an economist at the Labour and Economic Development Research Institute of Zimbabwe.