RESERVE Bank of Zimbabwe (RBZ) governor John Mangudya has launched a rare scathing attack on the government for steeply increasing tariffs for public utilities, warning the decision will have serious ramifications on market stability.
In the 2021 National Budget, as part of its strategy to increase revenues for next year which is expected to be ZW$390,8 billion (US$4,6 billion), excluding retained revenue, Finance minister Mthuli Ncube announced that fees and charges for public services would be reviewed upwards.
This comes as the government needs to fund its ZW$421,61 billion (US$5 billion) budget for next year as it remains mostly broke and has no external access to fresh finance due to growing human rights abuses as well as existing arrears.
At the time of the announcement to increase fees and charges for public services, economists warned that the decision could add to the existing inflationary pressures as both the formal and informal players could in turn increase their prices.
“Yes, the pricing of public utilities is also of concern, of great concern. We have advised government, we have advised the Minister of Finance that we need to be responsible when it comes to public utilities because the way the figures go up appears like there is no relationship with the rest of the products,” Mangudya said, at the Zimbabwe National Chamber of Commerce 6th Annual Business Review Conference on Thursday.
“To increase the price by 120% in an economy where inflation is 5% and below, month-on-month, is not being responsible. We, as advisors to the government, have advised the same line and have said it because we do not want to lose stability because of prices of public utilities. We would be shooting ourselves in the foot.”
The reference to the 120% increase Mangudya alluded to, was the decision by the Zimbabwe National Roads Administration (Zinara) to increase tolling fees for light motor vehicles that fall under class one to ZW$120 from ZW$45.
Mangudya said he agreed with economists, consumers and business that raising fees and charges for public services would be detrimental to efforts to stabilise the economy.
According to Mangudya, efforts to stabilise the economy have led to a drastic increase in foreign currency which, as of the end of last month, stood at US$1,06 billion.
From this amount, US$566,23 million was held in nostro accounts by local banks with partner accounts outside the country while US$498,18 million was foreign currency at the banks in Zimbabwe.
Foreign currency reserves rose due to increased exports which grew 6,9% to US$3,43 billion in the first 11 months of the year from 2019 due to the performance of the forex auction.
Further, international remittances rose 40% to US$1,45 billion in the 11 months of the year compared to US$1,04 billion during the comparative 2019 period.
Overall foreign currency receipts rose 17% to US$5,76 billion in the 11 months of the year from a comparative of US$4,92 billion last year.
Lastly, reserve money supply has been contained at below quarterly target of 25% since January with the central bank boss reporting the figure to be just under ZW$19 billion last month.
As such, more pressure on inflation will see demand for products and services increase causing a decrease in supply, thus increasing the need for foreign currency to import to meet the gap.
Mangudya said the increase in foreign currency now means that savings are also being created to meet demand for imports.
“Business tends to copy what the government is doing. So, the Zinara issue on tollgates of ZW$45 to ZW$120 was quite high…the psychological effect will affect business,” he said.
Government departments and ministries that had not reviewed fees, levies and charges at the time the 2021 National Budget was announced late last month were told to do so by January 1, 2021.
However, in light of decreasing job opportunities, high unemployment and eroding wages from a depreciating Zimdollar the rise in these fees and charges could overwhelm struggling families.
“If you look at abject poverty, it has gone up. And I think if you look at Zimbabwe the poverty rate is about 34% or 35%, abject poverty on the ground,” former ZNCC president Luckson Zembe said.
“If you look at general poverty you are talking about between 70% and 80% on the ground to the extent that as developmental organisations who were focusing on rural areas, we have had to take a turn and come into the urban centres because of the nature of poverty and how livelihoods have been impacted.”
He said currently seven million Zimbabweans were food insecure and that talk about a stable environment was not correct because of the level of poverty on the ground.