“MR SPEAKER Sir, the major challenges we face arise mainly from high inflation and poor foreign currency generation. These however are not insurmountable…Resolving
them will however involve some pain.”
These remarks by Finance and Economic Development minister Herbert Murerwa when he presented his Supplementary Budget in parliament in August set the agenda for new Reserve Bank of Zimbabwe governor Gideon Gono.
As the former chief executive officer of the Jewel Bank of Zimbabwe Ltd moves into the plush RBZ offices on Harare’s Samora Machel Avenue Zimbabwe is on the brink of total collapse because of skewed macro-economic fundamentals which have had a negative impact on the productive sectors.
The instability is characterised by a high budget deficit of $301 billion, high levels of debt, low levels of domestic savings and productive investment, high inflation (455,6%), a crippling foreign currency shortage and company closures.
Prominent banker Cornelius Sanyanga said pronouncements of policy programmes that were never followed through, especially from the Finance ministry, only served to accentuate the crisis.
Gono is expected to perform miracles at the central bank. Luckily for him, he is very close to President Robert Mugabe.
The banker has clocked thousands of air miles with the 79-year-old leader on numerous trips in search of fuel.
Gono was at the centre of all fuel deals and Mugabe trusted him for his pivotal role in that department.
The RBZ however is a different and more complicated jigsaw puzzle.
Zimbabwe’s fiscal picture has been deteriorating with the budget deficit rising annually.
Analysts say chronic fiscal deficits and supplementary budgets have been the chief architects of the hyperinflationary environment now prevailing in Zimbabwe.
Of particular concern have been excessive budget overruns and the Ministry of Finance and Economic Development’s $672 billion supplementary budget – almost equal to the original budget.
Notwithstanding the shrinking economy, the country’s volume of money supply has been rising sharply.
Zimbabwe has become the most inflationary economy in the sub-region with annual headline inflation recorded at 103,8% in November 2001 now standing at a record 455,6% in September.
Analysts say this is just one dimension to the numerous experiences the economy has gone through over the last few years which Gono will have to face.
Zimbabwe National Chamber of Commerce (ZNCC) policy and advocacy manager James Jowa said that whether the RBZ has a new governor or not makes no difference.
“The Reserve Bank governor in this country is just ceremonial because of the nature of the Act that governs the central bank,” he told businessdigest. “It is cabinet and the Ministry of Finance and Economic Development that calls the shots at the RBZ. The RBZ is not autonomous as is the case with progressive economies the world over such as South Africa.”
He said regardless of the ineffectiveness or otherwise of any new RBZ governor, one of the critical issues to restore the economy was to reduce money supply growth in order to bring some stability on inflation and the exchange rate.
“This means that the RBZ boss should stand his ground and not allow government to spend as it wishes,” Jowa said. “This is going to be a very difficult task. Moreover, the RBZ is already working overtime to print more money to meet the hyperinflationary-induced demand against any set targets on money supply growth.”
Century Holdings Ltd (Century) in their response to the new governor said the incumbent would have to address the foreign exchange rate, interest rates, and try to boost economic growth by providing export incentives.
“The central bank agreed with exporters six months ago to review rates quarterly,” Century said. “However, the rates have remained stagnant impacting negatively on the country’s ability to attract foreign currency to flow back to Zimbabwe from the diaspora.”
Century said there was need to stimulate generation of currency through exports across all sectors such as mining, agriculture, horticulture and manufacturing.