WHILE the mid-term monetary policy presented by Reserve Bank of Zimbabwe governor John Mangudya has been lauded for being sober and conciliatory, it needs to be complemented by a sound fiscal policy for it to be effective.
Mangudya presented his maiden monetary policy last week where he called for back-to-basics values to pursue Zanu PF’s five-year economic blueprint, ZimAsset, a shared vision of “Sustained Growth of the Economy for the Betterment of Zimbabweans”.
He said the basic values should include respect for the rule of law, policy clarity, consistency, transparency, predictability, nurturing positive business culture as well as a visible fight against corruption, smuggling and profiteering.
He called for unity of purpose in what he called “Team Zimbabwe” to turn around the economy.
Mangudya introduced a three-tier system for banks’ compliance with minimum banking requirements recognising the huge challenges financial institutions are facing in raising US$100 million by 2020.
Tier one, which includes large indigenous banks and foreign banks are still required to meet the 2020 deadline.
However, financial institutions falling under tiers 2 and 3, which include commercial, merchant banks and micro-finance institutions have had their 2020 minimum capital requirements reduced to US$25 million and US$7,5 million respectively.
This will ensure that banks which are struggling remain viable.
The announcement by Mangudya that the central bank will import coins will also be welcomed by the public frustrated by having to buy unwanted small items such as sweets or pens instead of change in coins.
His stark warning that it will be suicidal to bring back the Zimbabwean dollar will also be well-received.
However, failure by Finance minister Patrick Chinamasa to present the mid-term budget means the policy is operating in isolation. The fiscal policy is expected to give guidance to the central bank.
The policy statement by Mangudya has, however, resonated with economist Takunda Mugaga’s assertions.
“I will call it a sober and less hawkish approach to handling the banking sector. It is more solution-orientated than being disciplinary,” he said.
Mugaga said by introducing the three-tier minimum capital requirements deadline for financial institutions, Mangudya is trying to salvage banks whose prospects “looked hopeless”.
He said in dealing with “toxic assets” in the form of non-performing loans, there was also a need to deal with “toxic managers within the banking sector”. Mugaga said without dealing with errant managers in the banking sector, it would be futile to address the issue of non-performing loans.
Economist Eric Bloch was also impressed by Mangudya’s policy statement.
“The governor deserves very high commendation for his comprehensive endeavours to recognise the positives, ills and the remedial needs of Zimbabwe’s economy, and for his unhesitating intent to pursue fulfilment of those needs, irrespective of whether or not those remedial needs fit in well with governmental policies, actions and ideas,” Bloch said.
He commended Mangudya for being candid in his policy statement.
“Clearly, the governor places economic recovery and wellbeing and consequential improvement of life for the Zimbabwean people foremost, well ahead of any endeavours to benefit from governmental ingratiation,” Bloch noted. “Instead, he has striven to call ‘a spade, a spade’, and to plan right and effective measures and controls for the uplifting of the economy and of the populace.”
However, economist John Robertson sees it differently saying that the back-to-basics values espoused by Mangudya did not ease the fears of investors.
“There is nothing that the governor said in this monetary policy which is going to encourage investors that were discouraged before he presented it,” Robertson said.
He said the back-to-basics values presented by Mangudya did not improve the country’s ability to attract investment. Robertson added that Zimbabwe “is the most unattractive investment option in the world” due to the government’s policies such as indigenisation.
Robertson said the governor should have taken steps to protect the value of the United States dollar if the economy is to improve. He gave the example of government setting the maize price at US$390 a tonne when the international average maize price was pegged at US$200 a tonne.
He said relaxing capital minimum requirements will slow down the rate at which banks will merge.
Robertson said the minimum capital requirements set initially were meant to encourage banks to merge reducing the number of banking institutions in the country.
“The governor still has a long way to go before the monetary policy makes a difference,” he observed.
Even though Mangudya has talked about growing the economy in his policy statement, it might be insufficient without poverty reduction, warns economist Godfrey Kanyenze.
“There needs to be a correlation between growth of the economy and reduction of poverty,” Kanyenze noted. “You may grow the economy without the benefits of that cascading down to the people. The growth factor on its own is not sufficient. It needs to be complemented by job creation.”
He said growth will only be meaningful if the poor are integrated within the mainstream economy and resultant growth.
Kanyenze said the failure by Chinamasa to present the mid-term fiscal budget weakened the monetary policy statement.
“Without the anchoring fiscal policy, we do not have a fiscal mid-term review to augment the monetary policy statement,” Kanyenze said. “This policy statement will not take us to the promised land because of the missing fiscal cylinder.”
He pointed out that the monetary policy statement had not done much more than identify the current challenges facing the economy.
“While we laud the governor for coming up with the monetary policy statement, we need a more holistic approach where both the monetary and fiscal policies should all fire in the same direction,” Kanyenze said.