Monetary policy 2016: Mangudya’s tough call

RESERVE Bank of Zimbabwe (RBZ) governor John Mangudya should announce a raft of reforms to improve the country’s competitiveness and restore confidence in the banking sector in his 2016 monetary policy statement, analysts say.

Taurai Mangudhla

Mangudya’s options are limited largely due to a handicap stemming from the country’s 2009 decision to adopt a multiple currency regime, taking away some of the key monetary policy instruments from the Reserve Bank. This has significantly hamstrung the effectiveness of the monetary policy as the country no longer has its own currency.

The central bank chief is also expected to justify adding of the yuan to Zimbabwe’s currency basket.

Among the priority areas is the state of the financial sector, given that some banks have closed while others are struggling to survive due to a liquidity crisis. Banks are also struggling to meet the stipulated capital requirements and service debt emanating from non-performing loans (NPLs).

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Independent economist John Robertson said the economy is in a rut, hence Mangudya should not be tempted to go the easy way out.
Roberston said the central bank chief should take advantage of the strengthening United States dollar to restore competitiveness in the Zimbabwean economy.

“The monetary policy should restore competitiveness because right now it is cheaper to import everything, including basics such as maize,” said Robertson.

“The RBZ must use its authority to bring down costs. The governor must say ‘if you are a property company you must reduce your rent and trade unions should be told to stop asking for more money because the US dollar is stronger’. Even Zesa and Zinwa should not come up with ridiculous tariff hikes.”

Former Economic planning minister Tapiwa Mashakada said Mangudya must announce policy measures that ensure financial stability while giving confidence to investors and depositors.

“Confidence is very important in matters of economic and financial management,” Mashakada said, adding the governor must introduce financial regulatory measures such as stringent capital levels, strict financial reporting and corporate governance standards in order to instill further confidence and stability in the financial services sector.

Mangudya’s previous attempts to end financial arbitrage through moral suasion in the hope that banks lower their service charges have failed, leaving the central bank chief with no option but to take it head on, Mashakada said.

“In this country we have had the problem of financial arbitrage. Deposit interest rates remain low while lending rates are punitive. Bank charges are also ridiculous and the governor should tackle this once and for all.”

Mashakada said the governor is also expected to come out clear on the country’s reserves.

He said: “It is common knowledge the country is operating without reserves. The conventional practice is that a country should have at least three months of import cover.

“The other policy measure anticipated from the governor is in relation to the trade deficit which is now at an alarming level of US$3 billion. The governor should introduce measures to curtail imports and the illicit flow of funds.

“Unfortunately, he no longer has the exchange rate policy to make sure that imports become expensive. His hands are now tied and devaluation of the South African rand does not help things.”

Furthermore, Mashakada said, Mangudya needs to deal with deflation with a view to stimulate growth as well as announce extraordinary financing mechanisms for food import requirements given the impending drought.

Zimbabwe National Chamber of Commerce (ZNCC) CE Takunda Mugaga said the near absence of a robust corporate governance framework makes banks largely unattractive to would-be investors, hence the monetary policy has to correct any possible opaque shareholding structure in the existing banking institutions.

“It is even unfathomable to moot an efficient interbank market with a number of those struggling institutions still existing, in simpler terms attempting to reintroduce the interbank market without entirely cleaning up the whole financial system can be impossible,” said Mugaga.

He said consolidating efficiency of the interbank market which became operational in March 2015 goes hand in glove with the capitalisation of the central bank. This comes after Finance minister Patrick Chinamasa recently committed to further recapitalise the central bank to the tune of US$150 million.

“This, therefore means the coming monetary policy must be a platform to interrogate and evaluate how the interbank market has fared since its reoperation whilst at the same time finding the best model of pricing financial instruments notably the treasury bills without leaving the paper unattractive as that tends to threaten the interbank market efficiency,” Mugaga said.

The ZNCC executive said there is also need to expedite the amendment of both the Banking Act and the RBZ Act, adding NPLs must be validated.

Already the RBZ has undertaken to improve banking sector stability and financial inclusion in the medium term as the apex bank moves to restore confidence in the banking system.

Before 2009, a number of banks collapsed. The post-dollarisation period has seen eight banks — Genesis, Capital, Interfin, AfrAsia, Tetrad, Royal, Trust and Allied — going under prejudicing depositors of their hard-earned cash and destroying trust in banks.