PHILLIMON MHLANGA AND LIVINGSTONE MARUFU
Dr John Mushayavanhu, the new governor of the Reserve Bank of Zimbabwe (RBZ) is expected to unveil the highly anticipated monetary policy this week, amid increasing concerns that he will have a herculean task to immediately halt the rapid decline of the Zimbabwe dollar and the economic implosion , it has emerged.
Business Times was informed by a number of government sources that Dr. Mushayavanhu is likely to make his first monetary policy announcement on or before Friday, because the Monetary Policy Committee is scheduled to convene on Monday next week to discuss the 2024 monetary policy.
Dr. Mushayavanhu is also anticipated to make an announcement regarding the future of the Zimbabwean dollar, which has dropped by almost 70% in recent months.
As individuals and companies flocked to purchase US dollars, which hold their value better, the value of the Zimbabwean dollar fell to all-time lows.
Dealers in the parallel market want a premium of 60% on the US dollar.
More than 15 years after the previous Zimbabwe dollar had to be abandoned, Zimbabwe’s runaway currency threatens to plunge the nation back into hyperinflation.
The Zimbabwe dollar was trading at ZWL$22 476 against the US dollar on the official expanding its loses to almost 70%. It now ranks second worse currency in the world , behind the Lebanese pound.
On the parallel the Zimbabwe dollar was yesterday trading at ZWL$43 000 per the American dollar.
Consequently, a sense of urgency has gripped the nation after President Emmerson Mnangagwa brought forward the start date of the new governor, Dr Mushayavanhu, by a month.
This week, a number of analysts told Business Times that the new governor, Dr John Mushayavanhu, must not linger too long on exiting quantitative easing, which is essentially the government printing money.
Doing so, would increase inflation and cause the price to soar above the means of many.
Rumour swirling in the market the move was made to announce a new currency that may include embracing the gold standard.
Economist Vince Museve told Business Times that the primary cause of market volatility was a lack of confidence.
“The key issue driving the loss of value of the Zimbabwe dollar is lack of confidence which is both an economic and political phenomenon. Economic policies alone will not suffice to rebuild confidence,” Musewe said.
He added: “There is nothing in economics called structured currency. Rather the government is effectively trying to prop up the value perception of the Zimbabwe dollar by deriving that value from another asset which is gold. So our currency is effectively a derivative whose value will be based on a precious metal. Whether that will increase confidence in the Zimbabwe dollar currency remains to be seen.”
Former Foreign Affairs Minister, Dr Walter Mzembi said there was no political will to extricate the economy from its woes.
“Zimbabwe is not short of technocrats, there are hundreds of eligible candidates for the post of governor of the RBZ including the newly appointed Dr (John) Mushayavanhu, what it evidently has a shortage of is political will. Fix the politics, in order to fix the economy.
You almost feel pity for each new appointment. They come in looking fresh, urbane and well meaning, there after the political initiation begins and the technocracy evaporates, Dr Muzembi said on his X (formerly twitter).
Former independent legislator for Norton constituency, Themba Mliswa, weighed in saying: “Congratulations to Dr Mushayavanhu. If all former governor John Mangudya failed it was not for his own lack of capacity but politicians. Politicians have the final say and often times seek for self-benefit even against factual economic sense.”
Another economist, Professor, Gift Mugano said: “There are high expectations that the structured currency will cure the currency crisis. The bad news is that the structured currency will not rescue
the Zimbabwe dollar from the graveyard. Structured currency will suffer the same fate as the bond note. The only currency we must establish is called confidence. This is a big elephant. Unfortunately, we cant avoid it because it is enormous.”
On the other hand, another economist, Persistance Gwanyanya, who is also a member of the Monetary Policy Committee said: “As Dr Mushayavanhu joins the RBZ, I must emphasise that our economic and financial challenges are structural and cannot be sorted overnight.”
According to some economists and economic analysts, Dr. Mushayavanhu is under pressure to deliver a monetary policy statement that includes specific actions that will stop inflation and stabilize the exchange rate over the medium to long run.
Additionally, annual inflation increased sharply from 47.6% in February to 55.3% in March 2024, driving up the cost of necessities.
For the new head of RBZ, Kurai Matsheza, the president of the Confederation of Zimbabwe Industries (CZI), told Business Times that stabilizing the exchange rate will be a game-changer.
“The elephant in the room is the exchange rate stability and if governor Dr Mushayavanhu puts in place measures that will arrest inflation and stabilise the exchange rate everything will fall in place.
“All other challenges depend on these factors and if he wins against exchange rate, he will win the forex retention threshold puzzle as the gap between the official and parallel market will be narrow,” Matsheza said.
The Chamber of Mines of Zimbabwe CEO, Isaac Kwesu said the arrest of the exchange rate and inflation could compensate for softening prices.
“Given that miners are in a quandary emanating from falling commodity prices, if the new governor could come up with measures that address galloping inflation and volatile exchange rate, we may see improved viability in the sector,” Kwesu said.
Another economist Dr Prosper Chitambara, said the new governor’s mammoth task at hand will be to stabilise the currency and the exchange rate.
“I am expecting exchange rate reforms to ensure greater flexibility of the exchange rate regime so that it is reflective of market forces of demand and supply. We are expecting the monetary authorities to institute measures that restore local currency stability. The issue of stability goes beyond the Monetary Policy Statement but concrete measures will bring confidence as well as the restoration of stability in the macro-economic conditions,” Chitambara said.
Yet another economist Tinashe Kaduwo said Dr Mushayavanhu should tame inflation and ensure there is stability in the market.
“The new governor is likely to focus more on inflation. I am expecting strong policies to tackle inflation. We have also seen a sharp rise in microfinance activities. This is a result of a huge space left by banks. Banks have slowed down on lending as a result of high inflation and unsustainable interest rates which have seen individuals relying much on microfinance institutions for consumer loans.
“I think the governor will likely review banks minimum capital requirements, review interest rates and strengthen governance of both banks and microfinance institutions,” Kaduwo said.
According to yet another economist Malone Gwadu, Dr Mushayavanhu should deal with money supply which is the root of all stabilities in the economy.
“Key expectations are around taming inflation and exchange rate volatility has been brought about as a result of money supply growth feeding into excess liquidity which consequently piles pressure on foreign currency in the market.
“We also expect foreign exchange market to be re-aligned and restarted to better suit market realities, following the auction having been closed since 2023. Business needs formal ways of trading their currencies to oil their operational needs.
“Lastly we expect targeted measures around capacitating alternatives saving and hedge instruments such as the ZiG. This will serve in reducing pressure on the greenback demand which will commensurately ameliorate exchange rate volatility and exchange rate induced inflation,”Gwadu said.
