THE Mid-Term Monetary Policy Statement (MMPS) and the fiscal initiatives respectively presented by Reserve Bank governor John Mangudya and Finance minister Mthuli Ncube in Harare on Monday can be summed up in one word: economic policy merry-go-round.
The Brett Chulu Column
The turnaround rhetoric the new administration has been bellowing a decibel higher each day, but this has not been matched with substance. We have been thrust into another round of economic policy merry-go-round, except that there is nothing merry about it, threatening to get us economically giddier and faster than the last round.
Sifting through the technical jargon, we come to the root of the matter; abracadabra money has been officially recognised. This hey-presto money is the Real-Time Gross Settlement (RTGS) and bond notes (I just do not buy the Afreximbank backing tall tale). Quarantining hard foreign currency accounts from contamination by virtual money or fiat currency is a begrudging admission by monetary authorities and their political principals that the RTGS, mobile money transfers and bond notes are all indeed local currency.
Our monetary authorities are now playing the US Federal Reserve Bank monetary game, pouring rivers of hocus-pocus money into the financial system. Is this the long-awaited big-bang promised by the new financial brooms? We were promised a fiscal shock. We got more: monetary shock too. They only difference is that our open sesame money is not an international reserve currency and has no transactional value beyond our national borders.
I really sympathise with our monetary authorities for the courage of still insisting that the RTGS and bond notes are at par with the US dollar, while also separating their holding accounts and thus admitting they are not equal; the parity only exists in the realm of voodoo economics. To claim that our hocus-pocus money is equivalent to the US dollar is a gross insult to accepted economic and financial rationale. A fiat currency’s intrinsic value is determined by the confidence of the consumers in the issuing authority and government, the size of the economy, the stability and performance of the economy.
Equating our RTGS and bond notes to the US dollar is saying our economy is as strong as the US’s and that players in the economy place the same level of confidence in our currency-issuing authority and government. You don’t have to be a stochastic modeller to decipher that such an equation suffers from irredeemable financial illiteracy and stands at the height of economic lunacy. What we are seeing is monetary authorities now accepting the proposal by the banking sector in 2016, who, thinking straight, called for the separation of bond notes and US dollar accounts.
The apex bank ignored the call to commonsense banking and railroaded the proposal to dilute and bastardise the US dollar accounts. Two years later, with tails between their legs, they are implementing the very idea they once dismissed with contempt in pursuit of unsustainable interventions. Separating the RTGS accounts will not stop the value of the fiat money going feral. Instead, it will boost the parallel market for foreign currency.
Ncube’s re-enactment of statutory reserve requirements for banks, at 5%, as one of the traditional tools to control excess money supply (abracadabra money) is a way of controlling inflation. It is very doubtful if this move will have its desired effect because the minister has no political muscle to rein in rampant spending by government for consumptive expenditure. In his statement, Mangudya rebuked the government behind the shield of economic jargon. He talked of fiscal imbalances, a polite way of saying the record of our government is horrendous when it comes to living within its means.
Ours is a fiscally profligate government that has no qualms of raking a 2017 fiscal deficit of 16% of gross domestic product, habitually breaks its own statutory borrowing limits from the Reserve Bank, breaches national debt limits and forces commercial banks to flood the economy with abracadabra money to feed its insatiable appetite for consumptive expenditure. Government has no plans and capacity to revive production. It only knows how to collect money and spend it.
Now to Ncube’s fiscal initiatives, which he claims are meant to support the monetary policy initiatives. He wants to widen the tax revenue base by introducing a 2% transfer tax. His aim is to close the yawning budget deficit by increasing revenue, not cutting expenditure. In hard-pressed and economically worn-out Zimbabweans, he has found a soft target to help him to meet his own key performance indicators under cabinet’s 100-day cycles.
His famous “political collar” is not an easy target in terms of forcing the politicians to cure their penchant for obscene consumptive behaviour that forces it into uncontrolled consumptive borrowing, the major source of our economic instability.
Ncube’s tax slap was predictable. The economics of abracadabra money are well known. Each time hocus-pocus currency floods the market, tax increases, either as inflation or as fiscal tax. For all practical intents and purposes, inflation is a tax. So for the sins of a fiscally profligate government, citizens are now facing double taxation; inflation directly caused by government’s irrepressible consumptive borrowing and Ncube’s intermediated transfer tax. The victims of poor governance are being further punished for the iniquities of the perpetrator.
Analysing the monetary policy and Ncube’s fiscal anchors, I could not help open my Bible and re-read unadulterated economic and financial wisdom from the ancient Near East. According to the wisdom of the Bible as operationalised in the ancient Near East, grain is more valuable than gold. The story of Joseph in Egypt during the famous famine illustrates this thinking. People from Egypt sold four valuables to Joseph to acquire grain to stave off hunger.
They successively sold their gold and silver, livestock , land and themselves, in exchange for grain (Genesis 47:14-17).
Here is the financial logic running in this thread; they started by disposing of what they deemed as the least valuable possession. Gold and silver was considered the least valuable of the four classes of valuables. Here is the order of importance from the least to the most valuable to the most valuable: money (gold and silver), livestock, land and human resources. Jacob knew this; when his uncle Laban offered to pay him in hard money, he refused and he insisted that he be paid in livestock.
What is the moral of the story? Our locus of economic recovery is based on money instead of the productive assets.
Our financial and economic thinking DNA needs some re-engineering. Money is simply a medium of exchange. It is what is produced for exchange that should be our focus. Potential productive assets such as land are under-utilised.
Many political fat cats and their families are multiple farm owners, holding these for ornamental purposes. There is no market for land.
At the risk of sounding like a broken record, the sooner our government realises that it must sort out the property rights mess and enable the productive sectors to do what they do best, instead of muscling them out from accessing productive financing, an abracadabra monetary policy is the only logical policy response.
There is no merry going around in this latest episode of economic policy merry-go-round. Hocus-pocus and merry-go-rounds won’t take us anywhere.
Chulu is a management consultant and a classic grounded theory researcher who has published research in an academic peer-reviewed international journal. — firstname.lastname@example.org