RESERVE Bank of Zimbabwe (RBZ) governor John Mangudya will soon present his Monetary Policy Statement amid high expectations for a cocktail of measures to arrest the deepening economic crisis characterised by price instability, low disposable incomes and rapid depreciation of the Zimbabwean dollar.
This comes at a time the local currency, the sole legal tender in the country since Statutory Instrument 142 was promulgated on June 24 last year, has massively lost value against major currencies.
Efforts to stem the rapid depreciation of the currency have not borne any fruit.The Zimdollar has lost more than 1 000% of its value since February last year when the central bank abandoned the fixed exchange rate of 1:1 between the US dollar and the bond note, a currency that is part of the Zimbabwean dollar, to peg the rate at 1:2,5.
Despite introducing new notes late last year, the shortage of cash in the market persists, with members of the public being forced to buy cash at prohibitive premiums as high as 50%.
The interbank forex market, introduced by the Reserve Bank to improve forex circulation, has not been able to satisfy the needs of the market, with companies bemoaning the inadequate allocation of forex from the facility.
Finance minister Mthuli Ncube has admitted that the interbank market needs to be fine-tuned and it remains to be seen how Mangudya will do so when he presents the monetary policy.
The measures have failed to halt the parallel market, with the exchange rate ranging between ZW$24 to ZW$25 to the United States dollar, much higher than the official interbank market rate which is hovering around ZW$17 to the greenback.
The more the currency weakens, the more incomes lose value for those earning local currency.This has resulted in the rise of the price of basic commodities beyond the reach of many. Inflation has now skyrocketed to 521,1% on a year-on-year basis.
He is expected to address the liquidity crisis in the market as well as the cash shortages when he unveils the monetary policy.The monetary policy must address ways to eliminate the parallel market as well as instill investor confidence, according to economist John Robertson.
“I will be happy if he tells us how the black market is going to be stopped,” Robertson said.“If you go to South Africa and ask what is the black market rate for the rand, they are going to look at you and say ‘What is wrong with you?’ There is need to address the issue.”
He said the failure by the central bank to bring normalcy in the market will hamper the country’s investment drive. He gave the example of the purchase of Meikles Hotel; it has taken more than two years for investment firm Albwardy of the United Arab Emirates to complete the transaction due to numerous requirements by the central bank.
“The group that bought Meikles complained of how long it has taken to complete the transaction. In other countries, this would have taken just a few hours. This will discourage investors who will take their money elsewhere,” Robertson said.
Mangudya will also be under pressure to address the dwindling gold deliveries due to the currency reforms by the central bank. Gold deliveries to Fidelity Printers and Refiners plunged sharply in June this year, owing to a lack of confidence among small-scale miners, the biggest producers following government’s decision to outlaw the multi-currency system.
A schedule of deliveries shows that the total amount of gold delivered to Fidelity Printers, which is the sole legal buyer of the mineral, nosedived from 2,323 kilogrammes in May 2019 to just 1,658kg in June. It remains to be seen what incentives the central bank will introduce to curb dwindling deliveries.
The current foreign currency threshold of 55% is inadequate, resulting in gold producers smuggling the mineral or selling it outside the formal market.
President Emmerson Mnangagwa revealed recently that the country has lost US$60 million worth of gold which has been smuggled to Dubai.Gold producers have called on the central bank to increase the threshold to at least 80%. It remains to be seen if Mangudya will raise the threshold this time around after initially ignoring calls to do so when he presented his Mid-Term Monetary Policy last year.
This will also be the first Monetary Policy Statement by Mangudya since the Monetary Policy Committee was formed late last year. Analysts say it will be interesting to see if the formation of the committee will result in a monetary policy document that brings about solid and bold measures that address the anomalies in the market when compared to previous ones.
Business consultant Simon Kayereka says the monetary policy must focus on improving productivity and curb fiscal spending. “The monetary policy should touch on four major areas, namely price stability, the exchange rate, inflation and the foreign currency threshold. It is my view that these should be underpinned by productivity,” Kayereka said.
“In order to stabilise the economy, the exchange rate must remain stable and predictable. The RBZ must shy away from increasing money supply through printing which will increase prices and push up inflation. The forex retention threshold must be increased as this will increase gold deliveries which have dropped alarmingly. It is a simple choice of significantly increasing the forex threshold or losing more gold through smuggling and side marketing.”