Zim central bank oversteps mandate

ZIMBABWEANS could easily top the list of citizens worldwide who know what their central bank is doing at any given time of the year. But they also top the list of citizens who do not know what role their central bank should be playing.


In the past four years the Reserve Bank of Zimbabwe (RBZ) has emerged as one of the most powerful institutions in the country.
It has been labelled the real government while RBZ governor Gideon Gono is possibly the second most powerful individual in the country after President Robert Mugabe.
“The RBZ and Gono have become very powerful indeed,” said economist John Robertson. “Gono appears to have been given authority over every ministry.”
The hierarchy of power starts with Mugabe, followed by the politburo, then Gono, followed by cabinet and lastly parliament. However, despite all this power, the RBZ has systematically deviated from its core monetary objectives.
Under the leadership of Gono the RBZ, as monetary authorities, has evolved from being the one half of the economy’s financial system to being the nerve centre of the troubled economy suffering from years of gross mismanagement by Mugabe’s government.
The other half, the Ministry of Finance, as fiscal authorities, is next to redundant.
The RBZ has spent money in almost every sector and was of late bankrolling the elections. Now the RBZ faces another huge budget — the presidential run-off and payments for maize and tobacco.
While no definite figures were available for the cost of the presidential run-off, the Commercial Farmers Union (CFU) estimates that Zimbabwe will have one of its worst maize harvests since 1980.
Only 300 000 tonnes of maize are expected and the farmers have been promised US$210 for every tonne delivered. The RBZ is expected to fork out an estimated US$6,3 million for maize deliveries.
However, the warning bells have begun to ring.
The RBZ is currently overstretched and attempts to meet this bill are likely to result in severe consequences for an already bruised economy.
“They will just have to print more money to finance these pledges. Where will they get the foreign currency?” asked University of Zimbabwe economics lecturer, Professor Tony Hawkins.
Even the farming community is sceptical that they will be paid. Years of broken promises have made them wiser.
“We would be very lucky to get the 300 000 tonnes delivered. And we’d be twice lucky to get the central bank to pay for those deliveries as promised,” said Commercial Farmers Union president Trevor Gifford.
Simply put, the RBZ is in a tight fix. It is finding it difficult to pay its debts and yet has been making pledges for more payments.
The RBZ owes exporters and NGOs funds that it raided from their foreign currency accounts (FCAs). Most gold miners and tobacco growers haven’t been paid since last year. The tobacco season is about to start.
So deeply rooted has been the influence of the central bank that when Gono sneezes, the nation catches a cold.
“Mugabe appears to have given him influence over everything. The exercise of authority by the RBZ is way beyond that which was planned for any central bank,” Robertson said.
The RBZ’s influence has been growing over the years. It has fed on the failures of the Mugabe government which has failed to live within its means for successive years.
Mugabe’s cash-strapped government has earned itself the reputation of not paying its debts and has become a serious credit risk.
With a rapidly dwindling tax revenue base and unable to borrow elsewhere, government has relied heavily on the RBZ to fund its recurrent expenditure.
Virtually every ministry survives on funds availed by the RBZ. Loss-making parastatals and state-owned companies have served only to make the situation worse.
Found in every sector, the central bank is a key player in agriculture, tourism, national security, health, manufacturing, mining, water and electricity provision and the media.
It can even be found in candle and freezit making, dam construction and borehole drilling, cattle restocking and small to medium enterprises.
Even the Ministry of Finance waits for policy advice from the RBZ.
Fiscal revenue sources amounting to $6 quadrillion and outlined in the 2008 national budget were exhausted in the first two months of the year.
This forced government to seek additional funding from the RBZ to the tune of $1,6 quadrillion, all borrowed in the space of three weeks.
Traditionally, central banks are supposed to implement monetary policy, control money supply, act as a government and bankers’ bank, regulate the foreign exchange market and gold reserves, set official interest rates, manage inflation and oversee the banking sector.
Gono has done this and more. But he has also and determinedly pushed the RBZ into uncharted waters for a central bank.
He has been very clear about where he stands. Gono has maintained the mantra that he remains guided by “conviction and not convention” despite assurances made last year that he was winding down quasi-fiscal expenditures (QFEs).
Gono established Fiscorp (Pvt) Ltd, a 100% owned subsidiary of the RBZ, which began administering the RBZ’s QFEs.
The damage done to the economy by the RBZ’s QFEs since 2003 has been very real.
Last year, an International Monetary Fund (IMF) report said the RBZ’s actions had resulted in losses amounting to 80% of the country’s Gross Domestic Product (GDP).
Zimbabwe’s GDP is estimated to have a purchasing power parity of US$6,186 billion. Purchasing power parity is a measure that compares two currencies with a view to equalising their purchasing power. It equalises the purchasing power of different countries for a given basket of goods.
This means that quasi-fiscal losses incurred by the RBZ have been in the region of US$4,9 billion.
The IMF also accused the RBZ of stoking inflation through the printing of money. Gono later admitted that increased money supply (M3) was the major driver of inflation. The M3 currently stands at 55 000%.
“The RBZ has access to Zimbabwean dollars by printing them. It has access to foreign currency by raiding FCAs and using printed dollars to buy foreign currency on the black market. The unavoidable consequences of this unbridled exercise of authority are run- away inflation,” Robertson said.
But instead of winding down, Gono has actually made the RBZ step up its QFEs. This has been in the form of the third phase of the farm mechanisation programme and the Medical Sector Skills Retention facility.
Now the likelihood of the printing press going into overdrive seems real with the prospect of the presidential run-off.
“It is a fact that the RBZ has failed to maintain the integrity of the currency. Quite frankly, it (the RBZ) has done very poorly on about every account,” said Hawkins.
Other QFEs incurred by the RBZ include the Agricultural Support Productivity Enhancement Facility (ASPEF), the Basic Commodity Supply Side Intervention (Bacossi) facility, the Parastatals Reorientation Programme (PLARP), the Local Authorities Reorientation Programme (LARP) and the Productive Sector Facility (PSF).
The central bank spread its tentacles to Operation Maguta, and has also bought vehicles which are now being used by the Zimbabwe Republic Police (ZRP) and state-owned broadcaster, ZBC.
The RBZ has also been paying for Zesa Holdings power imports and has paid the utilities’ foreign debts which were reported to have breached US$100 million last year. In addition, it has played in a key role in Air Zimbabwe affairs.
It has also created a fund for women and youths to engage in self-help programmes, invested in a bio-diesel project and has played a crucial role in the country’s water management through interventions in the Zimbabwe National Water Authority (Zinwa).
Mugabe and Zanu PF have campaigned on these RBZ-driven policies leading some quarters to label RBZ’s QFEs as vote-buying gimmicks by government.
“Ideally, a central bank should be autonomous making it free from politics,” Hawkins said. “Unfortunately, the RBZ has been used more as an arm of politicians and of the ruling party. National interests have been set aside for sectional interests.”
The independence of central banks has been a trend that has been followed by many developed countries as a way of improving long term performance.
This was after it was observed that if a central bank was too susceptible to political direction, it would encourage economic cycles at the instigation of politicians being tempted to boost economic activity in the advance of elections.
But Gono is not perturbed. Insisting that conviction takes precedence over convention, he also told the state media three weeks ago the RBZ programmes could not be classified as quasi-fiscal interventions.
Gono said the RBZ would not stop QFEs saying national policies were not cast in stone and that “we live in a dynamic environment in which change is the only constant”.
Gono said national policies had to be receptive to change and that the debate on quasi-fiscal operations by the central bank was political. He said RBZ’s actions were guided by the need to find and implement “practical solutions to practical challenges in our economy”.
But Hawkins begs to differ.
“Gono has been behaving irresponsibly,” he said. “He is behaving all the time as a political institution and the economy is the one suffering. Inflation figures for April, May and June will be shocking,” Hawkins said.

By Paul Nyakazeya/Kuda Chikwanda

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