Expedite reforms to calm market volatility, govt told

LIVINGSTONE MARUFU

Multiple economists and captains of industry and commerce have advised the government to accelerate  economic and political reforms in order to calm market volatility, Business Times can report.

Zimbabwe is currently facing a myriad of difficulties that are contributing to its severe economic instability, including high inflation, a runaway exchange rate, and a lack of foreign capital inflows.

This week, the value of the Zimbabwe dollar  relative to the greenback  was  ZWL$13164.03 , down from ZWL$11 916.91  per US$1  last week while on the parallel market the local currency was yesterday trading at ZWL$20 000 per US$1 from ZWL$18000 per US$1 last week.

“The government is acknowledging that the markets have zero confidence in the local currency, given its depreciation on the official  trading platform  since the beginning of the year. It is wrong to think that claiming to have a gold backed currency will restore confidence. Instead it needs serious political and economic reforms to stabilise the economy,” economist Tony Hawkins told Business Times yesterday.

According to Vince Musewe, another economist, this volatility dampens optimism and jeopardizes long-term growth prospects.

“The market no longer has confidence in the Zimbabwe dollar and it’s stability will only come through both substantive economic and political reforms. If the authorities could fully implement these reforms, long lasting stability can be achieved, and the Zimbabwe dollar can store value. But if this is not going to happen any time soon and the economy will be better off sticking to the American dollar until market sentiment on the Zimbabwe dollar improves as this will bring economic stability for everyone,” Musewe said.

According to economic analyst Victor Boroma, in order to attain stability, the authorities must expedite reforms.

“It’s high time that the authorities fasttrack reforms that give a local currency  and economy sustained stability. As long as there is no political will to limit government expenditure to collectable tax revenues, end the central bank quasi fiscal operations, implement a managed floating exchange market and limit political interference on central bank monetary policy.  Then it’s best to stick to the United States dollars and end all the uncertainty in the market. A local currency needs discipline and good economic governance,” Boroma said.

Wojciech Maliszewski, the head of the IMF team that was in Zimbabwe recently, agreed with local economists.

“Structural reforms aimed at improving the business climate, strengthening economic governance and reducing corruption vulnerabilities are key for promoting sustained and inclusive growth and would bode well for supporting Zimbabwe’s development objectives embodied in the country’s National Development Strategy 1. In this context, the mission encourages the authorities to ensure that the corporate governance arrangement, transparency and financial reporting, and accountability oversight of the recently established Mutapa fund are in line with international standards and good practices,” Maliszewski said.

“The mission encourages the authorities to accelerate the FX market reform by promoting a more transparent and market-driven price discovery in the official exchange rate and by removing existing exchange restrictions and distortions.

In particular, the restriction on the 10% allowable trading margin for pricing domestic transactions should be eliminated. The FX market reform should be accompanied by establishing an effective framework for exchange rate and monetary policies.”

He added: “Risks remain skewed to the downside, and the outlook will crucially depend on progress toward macroeconomic stabilisation and transformational structural reforms.”

Leaders executives are also advising the government to accelerate reforms in order to create long-term stability.

“We want the authorities to expedite  reforms to achieve the much needed economic stability. As for us business leaders, we want the Zimbabwe dollar to be strong and stable so that our exports will be competitive. Full dollarisation will not solve our economic challenges as it has its own challenges which include slow economic growth and uncompetitive as well as huge debts,” the president of the Zimbabwe National Chamber of Commerce, Mike Kamungeremu  told Business Times.

The Confederation of Zimbabwe Industries president Kurai Matsheza weighed saying: “I am sure views on the path to follow in the Zimbabwe economic terrain are always varied, but the bottom line of what we all want to see is economic stability. As a business community we would want a stable Zimbabwe dollar.”