Mangudya on the right track but …

SINCE his appointment as Reserve Bank of Zimbabwe (RBZ) governor last year, John Mangudya has been pulling out all the stops to fix some of the untold economic problems facing the country. So far he has done well in pushing for key reforms and addressing critical issues.

Zimbabwe Independent Editorial

Mangudya has managed to introduce an array of progressive amendments to banking laws, restore the RBZ’s lender-of-last-resort status, reinstate the interbank market, establish Zamco to tackle non-performing loans which are a drag on the economy, launch the Credit Bureau of Reference (CRB), deal with bank charges and exchange control regulations, introduce bond coins to address pricing structure issues and ensure banking sector stability.

Of course, some of the issues were already being addressed by his predecessor Gideon Gono when he took over.

One of the main functions of the central bank is being lender-of-last-resort.

So Mangudya made sure the bank is capitalised. As he announced on Wednesday when he delivered his monetary policy statement, government has capitalised the RBZ to the tune of US$100 million using long-dated debt instruments.

This will rebuild confidence in bank and the economy. A Credit Registry Department has been established as a unit in the RBZ supervision division to coordinate the collection of credit information from all banking institutions and microfinance institutions to maintain a databank.

A number of CRB project processes and activities will be rolled out in a year’s time. In the meantime, Banking Act amendments have been approved by cabinet to provide for legislation to cover operations of the credit registry and regulations for the licensing and operation of private CRBs.

Mangudya has also introduced small denomination coins — bond coins — into the national economy, including 1c, 5c, 10c and 25c to circulate freely side by side with other currencies used in the existing multi-currency regime.

As part of the multi-currency system consolidation process, Mangudya will officially bury the defunct Zimdollar in June when the RBZ demonetises it to compensate depositors who lost their savings and pensions when the country adopted foreign currencies in 2009 to replace the collapsed local unit. While he has not yet delved deeper to confront stubborn policy issues like indigenisation and deep structural problems, Mangudya is on the right track.

However, he would be hamstrung by the poisonous political environment. It is important for him to understand, even if he is an optimist, that it’s the politics stupid! Mangudya — who has no power to perform his primary role due to the demise of the local currency — cannot plausibly claim as he has done he is not constrained by politics.

Downside risks stem from politics and policy inconsistencies that undermine what he is doing. Government must sort out indigenisation, normalise relations with the West and with creditors, while improving the ease of doing business to attract investors.

Lack of significant reforms would further worsen the external position, set back the country’s capacity to repay, and ultimately hurt economic recovery prospects.

The external position remains precarious with low levels of international reserves, a huge current account deficit, and external arrears. Even in the absence of policy slippages, negative political developments could complicate his job and stall recovery.