Gono conversion imperative in curbing inflation

WE do not believe Reserve Bank governor Gideon Gono’s explanation that he postponed the announcement of his monetary policy to accommodate input from the Zanu PF people’s confe

rence and advice from the visiting International Monetary Fund team.

Gono, who was scheduled to deliver his statement yesterday, was quoted in the weekend papers as saying the market “should trade normally” because there was no need for the central bank to “be rushed into conformity without conviction …” That is to say abnormal things happen whenever he announces his monetary policy!

He offered this statement as the reason to postpone the announcement of the monetary policy: “It is critical that the forthcoming monetary policy statement be reconciled not only with the budget but with economic views, sentiments, advice and opinions from our interactions with the IMF team arriving in the country this week as well as economic views emanating from the forthcoming national people’s conference of the ruling Zanu PF party.”

This is tantamount to saying that Finance minister Herbert Murerwa’s budget had nothing to benefit from the IMF counsel and opinions from the Zanu PF conference. This is to suggest that Gono will continue with his quasi-fiscal antics in the New Year to “complement” the budget. This is despite a clear signal from Murerwa that he is keen to phase out “quasi-fiscal operations (by the Reserve Bank) by allocating resources through the national budget”.

There is no doubt that Gono’s quasi-fiscal activities have played a major part in fuelling money supply growth and inflation. At the beginning of the year the IMF — from whom Gono is now seeking advice and opinions — warned that the budget deficit could be as much as 60% and not the 3% announced by Murerwa in his budget speech at the end of last year.

The IMF attributed this high budget deficit outturn to the allocation of resources by the central bank outside the budget. We hope the visiting IMF team will remind Gono of this and talk him out of printing money. The deferment of the monetary policy announcement can therefore partly be as a result of the shock induced by Murerwa’s statement.

The quasi-fiscal activities have been Gono’s major source of political power. He has become so powerful that ministers and parastatal heads queue at his door to beg for lifelines.

To run this quasi-fiscal role, the central bank has in the last two years set up structures to administer funds doled out to parastatals and government departments.

This has inflated staff at the central bank where there are now departments dealing with agriculture, procurement of capital equipment, mining, exports, investment promotion, fuel procurement among many others. This is virtually another little cabinet presided over by Gono as prime minister.

The duplication of roles between departments of the central bank and government ministries has not improved service delivery and efficiency of state operations. It has instead given rise to uncontrolled expenditure arising from the printing of cash to finance activities outside the national budget.

Gono does not see anything wrong in this. He sees it as a faster method of policy implementation and achieving economic turnaround. He sees nothing wrong in doling out money to government departments largely through the printing of money.

In an interview in October, Gono maintained that his fiscal functions were within the scope of the Reserve Bank of Zimbabwe Act. He said his interventions were meant to make Zimbabwe “a better and prosperous economy”. He said his interventions were also as a result of the “absolute ineptitude by some officials accentuated by misplaced sectoral myopia on the part of those entrusted with the responsibility of running with those portfolios…”

This is the problem with Gono. He sees his policies as being superior to those of ministers hence his pursuit of quasi-fiscal activities is likely to continue.

Murerwa’s statement last week is however a major test of his ability to control the economy and expenditure by ministries. As the situation stands, he has very little chance against the ambitious Gono. The governor needs a major conversion to drop his fiscal interventions and the printing of money. We keenly await the monetary policy statement in the New Year.

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