‘Monetary policy ignores fundamentals’

THE monetary policy statement presented by Reserve Bank of Zimbabwe governor John Mangudya on Wednesday will not have much impact on the economy because it does not pronounce concrete measures to rein in government spending, analysts have said.

By Kudzai Kuwaza

The central bank chief announced a raft of measures, largely aimed at wooing investors, that include enhancing the nostro stabilisation fund by US$400 million, providing assurances that international remittances and individual foreign currency inflows received through normal banking channels are available for use when required by the owners.

The policy also pronounced the ring-fencing of foreign exchange inflows and provision of investment guarantees to lure foreign investors.

The policy statement presentation was held under the theme “Enhancing Financial Stability to Promote Business Confidence”.
However, former finance minister Tendai Biti yesterday dismissed the monetary policy statement, saying Mangudya was trying to bring solutions to challenges which he has no control over.

“The monetary policy is meaningless,” Biti said. “John (Mangudya) is on the receiving end of gross economic mismanagement by (Finance minister) Patrick Chinamasa.”

He highlighted that the budget deficit which is more than US$1 billion will escalate due to the government-sponsored Command Agriculture programme and harmonised elections due later this year.

Biti dismissed Mangudya’s undertaking that inflation will be contained at 3,7% this year.

“Anyone who says our inflation is less than 4% needs to have their head examined,” he said.

Biti said Mangudya’s proposal to punish those who charge multiple prices shows he was out of touch with the reality on the ground.

He described the monetary policy as a “dog’s breakfast which many dogs would not touch anyway.”

Economist John Robertson said the monetary policy did not have concrete measures to limit overspending by government.

“There is not much in the policy to overcome overspending and keep government in check,” Robertson said.

He said market confidence will continue to be dampened if the problem of the business sector being crowded out by government borrowing persists.

Economist and Zimbabwe National Chamber of Commerce chief executive Chris Mugaga said while Mangudya tried to address some areas affecting the economy, the policy did not elaborate on measures to curb government spending.

“The policy statement tried to address a number of areas but it also did not deal with other areas such as the inflation threat due to broad money supply introduced by government’s appetite for spending,” Mugaga said.

He pointed out that the policy was also silent on the growing RTGS balances.

Mugaga said although Mangudya had taken the positive step of trying to protect foreign investment, the challenge remains the high political and sovereign country risk.