All eyes on Mangudya

ON June 16 2016 #ThisFlag Pastor Evan Mawarire presented a framed picture of defunct bearer inscribed “lest we forget” to Reserve Bank Governor John Mangudya.

BY FEDELITY MHLANGA

Mawarire, who founded #ThisFlag movement and other activists, met the governor to present a petition against the introduction of bond notes, arguing it was a clever way of bringing back the demonitised Zimbabwean dollar through the back door.

The message by the protest group mirrored the level of resentment and indignation Zimbabweans have towards the introduction of bond notes.

In next month’s presentation of the monetary policy statement review, Mangudya will have a torrid time repackaging the introduction of the bond notes expected this October in a bid to allay fears of the possible hazards of a defacto new unit.

He faces a herculean task convincing the citizens that the promulgation of bond notes will not trigger hyperinflation reminiscent of the 2008 era.

In May, Mangudya announced the central bank had secured a US$200 million Afreximbank facility to back the bond notes.

Analysts say the central bank chief now has to be smart and do a lot of lobbying, while coherently articulating the issue in his monetary policy statement and after that if he wants to avoid fuelling market turmoil and resistance over bond notes.

His monetary policy statement will come just a month before the introduction of bond notes and should set the tone for the market in a bid to avoid arbitrage in the economy.

Experts say the monetary policy should also put in place measures to avoid the drying up of the US dollar in the economy, a development that could see people paying a premium to get the currency in exchange for bond notes.

In other words, Mangudya’s statement should put measures to avoid the explosion and a massive black market where bond notes will be sold in exchange for the US dollar at a premium.

Since January 2009, Zimbabwe has been using foreign currencies — mainly the US dollar and South African rand — after dumping its own currency that had been ravaged worthless by hyperinflation.

Mangudya’s task looks like mission impossible. He has to reverse the negative sentiment incalculcated in the market and also ensure acceptancy of the bond notes, while preventing wholesale hording and siphoning away of the US dollar.

Already, the central bank governor has said US$50 million worth of bond notes would go into circulation by year-end.

The proposed introduction of bond notes has been met with scepticism not only from citizens and the business community, but also from government officials.

In July, Speaker of the National Assembly Jacob Mudenda told delegates at the Zimbabwe National Chamber of Commerce congress the US$200 million Afreximbank facility being used to introduce bond notes should instead have been utilised to build gold reserves.

Mudenda argues the apex bank could use the money to buy gold and generate US$1,5 billion which could go a long way to alleviate the liquidity crisis besetting the economy.

With the country currently dogged by political problems characterised by protests, the introduction of bond notes now need proper packaging and lobbying to ensure acceptance by the already resistant market and disgruntled citizens.

Economist John Robertson said government should just abandon the issue of introducing bond notes as it will attract a backlash from the market and citizens.

“I can’t see anything Mangudya can do. He should not try to package something people don’t want. I saw it being abandoned before it happens,” he said.

Instead of the purported 5% export incentive, Robertson said government should effect a 5% reduction on mineral royalties.

“Government should change its mind and decide not to introduce bond notes. In fact, government should reduce royalties by 5% in mineral that will the best option,” said Robertson.

Zimbabwe National Chamber of Commerce CE Chris Mugaga said: “Mangudya has two options; one of publicity and the other of learning from best practise. On publicity, he should promote his idea. His next month presentation will be the opportune time to speak to stakeholders.

“I don’t personally think the most challenging thing is legal a instrument. This is a pure economic issue which if acceptance is compromised the solution would be continuous engagement with stakeholders.”