THE Monetary Policy Statement presented by Reserve Bank of Zimbabwe governor John Mangudya and fiscal measures by Finance minister Mthuli Ncube this week only tinker with the symptoms of a deepening economic crisis.
By Kudzai Kuwaza
Mangudya re-introduced foreign currency accounts (FCAs) in order to separate real hard currency balances from Real-Time Gross Settlement and bond accounts with nostro foregn currency accounts.
The measures, which will technically de-dollarise the economy and reduce existing FCAs to local currency accounts, have come under close scrutiny.
“In February 2018, the bank introduced a policy that requires banks to ring-fenceforeign currency for foreign exchange earners that include international organisations, diaspora remittances, free funds, export retention proceeds and loan proceeds. Numerous enquiries received by the bank point to the fact that this policy has not been implemented by some banks on a transparent basis that promotes confidence within the economy,” Mangudya said.
“With immediate effect, all banks are therefore directed to effectively operationalise the ring-fencing policy on Nostro foreign currency accounts by separating FCAs into two categories, namely Nostro FCAs and RTGS FCAs.”
The African Export-Import Bank (Afreximbank), Mangudya announced, has agreed to provide a US$500 million guarantee to the new nostro FCAs, which have been created to cater for exporters and other foreign currency earners.
The measures are a tacit admission that the bond note, which was strongly resisted by the general public when introduced, is not trading at par with the United States dollar. The local currency market has at least five exchange rate level: for hard currency (USdollars); bond notes; mobile money, RTGs and the Old Mutual Implied Rate .
The central bank’s decision to keep the bond note at par with the United States dollar, citing “unintended consequences” should the bond note be devalued points to the deep seated structural bottlenecks in the economy and the distortions created by the fiat currency.
The bond note, introduced initially in the form of coins to facilitate the availability of change before being introduced as notes to incentivise exports, has become a surrogate currency that has revived the black market.
The re-appearance of money changers at street corners in Harare and other cities is testament to the foreign currency shortages and attendant arbitrage. The resurgence of the parallel market has clearly exposed the fallacy that the bond note — a bad currency chasing away good money in the for hard currency— would trade at par with the United States dollar.
The call by Mangudya and Ncube for fiscal discipline is instructive. It shows the problem Zimbabwe faces goes beyond monetary and fiscal issues— it is basically polical and structural.
“Measures in this Monetary Policy Statement would therefore need to be supported by a package of measures to reduce fiscal imbalances that are exerting pressure on money supply and hence inflation as a result of increased consumer spending which in turn requires increased foreign currency inflows. The country needs to live within its means,” Mangudya said.
The catalogue of interim measures includes the provision of lines of credit for strategic imports, use of letters of credit for high-value foreign transactions and the introduction of a statutory reserve requirement for banks to mop up excess liquidity.
Analysts say the introduction of separate foreign currency and RTGs accounts is not only an admission of the disparity of the US dollar and bond notes in the market, but also an indication of failed policies and measures deployed to address the situation.
“It is an acknowledgement that there are distortions in the market. This attempts to separate RTGS accounts from US dollar accounts so that people can get access to their funds which is positive,” Godfrey Kanyenze, an independent economic analyst, said.
“The monetary policy is merely addressing symptoms of a much bigger problem. At the centre of the fiscal deficit is fiscal indiscipline.”
In his measures, Ncube proposed to limit the use by government of the RBZ overdraft facility in line with the Reserve Bank Act which stipulates that the government’s overdraft facility at the central bank should not exceed 20% of the previous year’s state revenues. He also proposed to limit the stock of Treasury Bills issued for government and the system used. The measures are meant to curtail fiscal indiscipline.
Kanyenze said the difference in debt figures and growth projections by the central bank and Treasury indicates that the two parties are not singing from the same hymn sheet.
However, if Mangudya’s proposals are to work, there is need for confidence in the market which has dissipated since the introduction of bond notes in November 2016.
The call by Mangudya for the transacting public to put their money in foreign currency accounts could be derailed by lack of confidence invoked by bad experiences and painful memories and 2008. At that time the RBZ raided foreign currency accounts which prompted several lawsuits against the bank. The bank’s assets would have been seized had then president Robert Mugabe not moved to protect its assets using the State Liabilities Act.
Ncube also presented a number of fiscal measures which include imposing a tax of two cents per dollar (2%) transacted on the intermediary money transfer platforms, further eroding disposable incomes.
This replaced the 5 cents per transaction measure. Economist and CEO Africa Round Table chairperson Oswell Binha said the monetary policy measures were largely counter-productive.
“The monetary policy has indicated right while turning left. Whatever the intention, whatever the spirit, we are not getting what we were supposed to get from the monetary policy. The statement has worsened the market perception of the bond note,” Binha said.
Former finance minister Tendai Biti said Ncube’s move to increase taxes is “disastrous”.
“It is a complete disaster. The key issue in the fiscal budget is the management of a crippling budget deficit caused by an insensitive, outlandish spending on the part of Zanu PF,” Biti said.
“You don’t resolve the deficit by taxing people; you deal with the massive reduction of expenditure, especially on allowances, vehicles and travelling.”
Biti described Ncube a coward for further taxing ordinary Zimbabweans while allowing senior government officials to recklessly spend money as if consuming an “aphrodisiac”.