GOVERNMENT must open debate on the currency issue and come up with a robust policy that deals with structural challenges buffeting the economy.
After an unprecedented economic meltdown in 2008 and attendant hyperinflation, President Robert Mugabe’s government grudgingly adopted a multi-currency system, which has now morphed into dollarisation, to stabilise the economy. The exchange rate stabilisation approach worked for a short time.
Thereafter Zimbabwe registered some modicum of stability, recording double digits growth. This was critical for an economy that had contracted by more than 50% over a period of 10 years up to 2008. The aftermath of the 2013 disputed elections signalled the beginning of a gloomy outlook. The economy decelerated, exports collapsed and foreign currency reserves sharply declined.
Addressing guests attending the Zimbabwe Independent Quoted Companies Survey launch in the capital on Wednesday, Macroeconomic and Financial Management Institute of Eastern and Southern Africa executive director Caleb Fundanga urged government to initiate debate on the currency situation. In a market where cash remains king despite a huge migration to electronic banking platforms, the debate is critical. “Government needs to make a bold decision by pronouncing the optimal policy choice, given the alternative options that have come out of dialogue so far. The optimal choice should be able to hault the prevailing currency crisis,” Fundanga said.
He said closer engagement with the Zimbabwe Diaspora Community is important given that an estimated three million citizens left the country due to economic and political factors. As the Independent has consistently reported, the introduction of bond notes, a quasi-currency, has had dire ramifications. Bad money is now chasing away good money. Arbitrage has now become the order of the day with a three-tier market pricing system emerging. United States dollars have become scarce, true to the economic principle that bad money indeed chases away good money.
All these developments make the need for a currency discourse and action more urgent than ever. Fundanga said while Zimbabwe has become resilient by going through various economic phases, certain policies and behaviour harmful to the economy may take long to correct.
Notwithstanding several interventions such as import-substitution measures, foreign currency has become a rare commodity, while at the same time local manufacturers are charging extortionist prices on consumers as a way to generate enough money to buy forex on the now thriving parallel market. The current era of bond notes has presented serious challenges. Exchange controls and allocations which were relaxed in 2009 have now become stricter
While pressure to resolve the issue is mounting, government is at sea on what needs to be done. The truth is without monetary sovereignty — which means having a local currency — it is difficult to run an economy. Fiscal policy, without being complimented by an effective monetary policy, is largely ineffective. Without its own currency and hence no quantitative easing tools, it is difficult for any government to intervene in the economy. But then again, Zimbabwe is not ready yet to bring back its defunct currency.