HomeBusiness DigestReservations over Gono's 2005 roadmap

Reservations over Gono’s 2005 roadmap

Conrad Dube

RESERVE Bank of Zimbabwe (RBZ) governor Gideon Gono this week presented his 2004 fourth quarter monetary policy statement which he also said was a roadmap for 2005.

face=”Verdana, Arial, Helvetica, sans-serif”>Gono’s policy is premised on a revised year-end inflation rate forecast of between 20-35% and a reorientation of underperforming parastatals which Gono said were the missing link in the economic turnaround plan.

The policy also points to the implementation on February 1 of the enhanced platinum sector regime, and provides details on the proposed Zimbabwe Amalgamated Banking Group (ZABG).

It also raised the price of gold to $130 000 per gramme from $92 000, while announcing new foreign currency retention thresholds for various sectors.

The policy also sought to recognise and treat tobacco growers as direct exporters for the purposes of exchange rate management, as well as access to foreign currency. This implies that tobacco growers will get 100% of their sale proceeds valued at the ruling foreign exchange auction rate.

Economists and the opposition are however not convinced that the monetary policy statement will set the tone for 2005. They said the statement lacked concrete measures to stabilise the key macroeconomic environment and address policy mismatches in inflation, interest rates and the exchange rate.

The economists questioned the integrity of forecast inflation and growth rates, the viability of exporters due to unfavourable auction rates and the continued doling out of funds to underperforming parastatals.

Tendai Biti, the Movement for Democratic Change (MDC)’s secretary for economics, said: “The monetary policy statement envisages the continued decline of inflation throughout 2005, with the resumption of gross domestic product (GDP) growth of between 3% and 5%. Where do these fanciful figures come from? Do they imply that there will actually be a policy reversal sometime, with a devaluation sufficient to restore exporter viability — this would also, in the short-run lead to the rekindling of inflation.

“It must be pointed out that the Ministry of Finance in its budget for the current year used 270% as its underlying inflation assumption for 2005. There is therefore a clear contradiction between the budget statement and the monetary policy review — one that neither surprises nor shocks us.”

On the viability of exporters, Biti said the main instrument for reducing inflation has been the deliberate overvaluation of the Zimbabwe dollar on the auction market.

“Gono has dug in his heels. Exporting will become progressively less viable in 2005, foreign currency will become more scarce, more jobs will be lost, more shrinkage of incomes and dimming of peoples’ lives and prospects. It’s going to be a continuation of what the state media call ‘an economic turnaround’ but ordinary Zimbabweans who struggle through its effects know better,” said Biti.

The MDC believes Gono precipitated the banking crisis by engineering a sudden rise in interest rates from under 100% to around 900%.

“He then handed the illiquid banks a poisoned chalice in the form of money from the Troubled Banks Fund. In this policy statement, Gono trumpets the Zimbabwe Allied Banking Group as the solution, despite the abject failure of the Consolidated Bank of Kenya, when in similar circumstances the government of Kenya attempted to bail out a number of failed banks. Since ZABG was first announced in September, several of the potential members have been dropped and the grand proposals for ZABG to be a unified bank have given way to it being an amalgam of its constituent parts.”

Economist John Robertson said he was not sure where the $10 trillion to be given to parastatals would come from.

Gono also appealed to political leaders to shun violence in the run-up to the general election in March.

He said: “Any soul lost in this election is a piston lost in our economic engine.”

Zimbabwe National Chamber of Commerce president Luxon Zembe said: “A violent election will wipe out all prospects of economic recovery. The success of the policy statement will depend on whether political leaders will conduct themselves in a manner that will restore confidence.”

He said parastatal support must be tied down to stringent rules that consider operational efficiency “otherwise we will create another bottomless pit”.

“Independent boards composed of non-civil servants must be seconded to the parastatals. These boards must also be empowered to make strategic decisions without which they will be useless if the decisions have to be vetted by parent ministries,” said Zembe.

Priscilla Misihairabwi-Mushon-ga, who is the chairperson of parliament’s portfolio committee on public accounts, said her committee had always raised concern on skewed corporate governance in parastatals.

“There is need for a proper framework in which the $10 trillion will be used. All along management have been paid unrealistic salaries without corresponding production so the money must be tied to specific output which has to do with structural issues,” Misihairabwi-Mushonga said.

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