THE local manufacturing sector has proposed a raft of measures to government so as to address structural problems besetting the local economy in the short-term, such as a debilitating cash crisis and spiraling prices, which rose rapidly towards the end of 2017, businessdigest has learnt.
By Tinashe Kairiza
As Zimbabwe hurtles towards elections this year, a raft of policy reforms, contained in a concept note formulated by the Confederation of Zimbabwe Industries (CZI), could provide the next government with a solid base to set the country’s economy on a firm recovery trajectory.
The concept note, titled Short Term Stabilisation — A Basket of Policy Options is meant, in the short term, to inject impetus towards a broad-based economic revival plan.
“The purpose of the submission is to proffer short-term solutions that will deal with the following problems which are now manifesting in the economy such as price stabilisation, access to foreign exchange for business and the shortage of cash as a medium of exchange,” read part of the concept note.
“These measures are proposed cognisant of the fact that the country is in a pre-election mode and have thus been tempered with the political realities that are present in any economy in the run-up to an election. We believe that these measures, if implemented, will provide a strong base from which a comprehensive post-election recovery programme can be launched.”
The paper, submitted to the Ministry of Industry, Commerce and Enterprise Development, singles out the acute foreign currency shortages characterising the local economy as one of the immediate challenges government has to tackle to stimulate economic growth.
Foreign currency shortages, the paper observes, is one of the key cost drivers that have triggered the systematic increase in the prices of local commodities recently.
“We are proposing a sterilisation programme through quantitative squeezing. This will cause a stabilisation of the black market currency exchange rates, thereby causing stabilisation in prices. A sterilisation programme does not address the root cause of our problems.
“What it does is give us breathing space to address the longer term issues in an environment of monetary and price stability. Announcing a sterilisation programme to the market will send a strong signal of the government’s commitment to price stability and pre-empt speculative behaviour,” noted the paper.
The paper also proffers a strategy to boost export volumes as well as mobilising foreign currency reserves through an “importer-financed export scheme.”
“Government will benefit in that exporters will be incentivised at zero cost of the fiscus to both export and to provide excess forex to those requiring it. Furthermore this will enhance the profitability of exporters and thus enhance overall tax revenue, helping to close the fiscal gap,” reads the concept note.
“The system will create a de facto market in foreign exchange which will ensure that supply meets demand. The fact that the system will match supply and demand will mean that importers will be able to access foreign exchange on request, eliminating the delays and problems associated with the current system. We will not have a runaway exchange rate as this will be regulated by the sterilisation programme which can be used to reduce the rate from the current 70% to 50% premium which we believe is the ideal range (30% to 50% premium).”
The paper also proposes the introduction of a “cap on bond notes only to a cap on the sum of bond notes and RTGS funds.”
“Capping the sum of bond notes in issue plus RTGS balances will ensure that whatever incentive rate is paid in the above-mentioned importer-financed scheme will remain stable. We can then allow the market to choose how much bond they want and how much RTGS they want within an overall cap.
“This has the twin benefit of ensuring adequate cash for market transactions as well as tightening monetary conditions because once cash is in someone’s pocket it cannot be lent to somebody else to chase forex whereas electronic money can be lent several times over. Thus not only do we solve the cash problem but we also contribute to overall macroeconomic stability using this approach,” the concept note states.