LIVINGSTONE MARUFU
The Mid-Term Monetary Policy Statement (MPS) presented by the Reserve Bank of Zimbabwe governor, John Mangudya last week was refreshing but challenges lie ahead when implementing some of the measures, economists have said.
They said Zimbabwe had the best policies, programmes and position papers but most of those lack proper implementation.
Mangudya has tackled the inflation to the level of 56.4% in July 2021 from 837.5% during the same period last year and has tightened the screws on the reserve money to be within sustainable levels.
He has also dealt with money supply growth, ensuring that the banking sector is safe and sound.
Mangudya maintained overnight accommodation interest rates at 40% and the medium-term lending rate for the productive sector at 30% in order to control money supply and curb speculative activities.
Mangudya said he was also going to address the gap between the official and parallel exchange rates through increasing the attractiveness of the local currency so that the local currency complements rather than competes with the US$, discouraging rent-seeking behaviour and promote sustainable behaviour and fair play in the foreign exchange market and provision of forward guidance to anchor exchange rate expectations and enhance business sentiment.
However, the central bank has been struggling to clear the backlog on bids allotted at the foreign currency auction system.
Industry players have criticised the RBZ for taking at least two months for local companies to access money allotted from the auction system.
“We say kudos to the good governor for the good MPS but my message to him is that he must not put himself under a lot of pressure but must deal with inefficiencies to do with exchange rate determination,” Christopher Mugaga, the Zimbabwe National Chamber of Commerce chief executive officer told Business Times.
“If they continue with the idea of clearing the backlog this will be a lost cause for the government and exporters but the long term solution to it is to come up with a competitive rate that can compete with the black market and reduce the gap.”
Added Mugaga: “That way we can be able to reduce the backlog as chasing with the clearance alone will give pressure to the central pressure and yield nothing.
The sustenance of the measures lies in the implementation and the allowance of the market forces to rectify the situation rather than the central bank interventions themselves as the market has the tendency of creating shortages even if you give it all it requires.”
“The sustainability equation will only be solved by ensuring the exchange rate determination continues to be improved, failure to do so, many companies will capitalise on that liquidity in the market to abuse forex currency coming from the foreign currency exchange platform.”
Mangudya has since revived letters of credit facilities for companies to utilise in international trade, instead of using cash.
Another economist, who preferred anonymity, said the RBZ governor has managed to deal with inflation and reserve money.
“The governor has tightened screws on inflation and money supply which is a good thing but must implement his measures to ensure that backlogs are cleared and reduce the gap between the official rate and parallel market rate,” the economist said.
Gift Mugano, another economist, said the central bank has met his expectations of the MPS.
“The RBZ’s measures are incredible. What is only needed is to utilise the US$600m from the Exchequer Account and the letters of credit to cut the backlog, otherwise what we have seen with the inflation, the central bank has capacity to deal with that,” Mugano said.
