Munashe Matambo
Finance and Economic Development Minister Mthuli Ncube is said to be contemplating setting up a committee dominated by foreign financial experts from around the world to monitor the country’s monetary policy as part of efforts to restore confidence in the country’s financial services sector.
Well placed government sources told Business Times yesterday this would pave way for proposed currency reforms, which are expected to help President Emmerson Mnangagwa’s administration to heal the ailing economy.
Ncube, soon after his appointment as Treasury chief in September indicated that he would prioritise currency reforms. But, yesterday, he made a major climb down on the proposed move saying the currency reforms would only be implemented after dealing with other fundamentals such as the “twin deficits” namely the budget deficit and the current account deficit. He also indicated that inflation, which shot up to 20,85 percent in October from about five percent in September was also making it difficult for government to enforce currency reforms at the moment.
To deal with this, the Treasury chief is said to be considering appointing a team of international experts to ensure professional management of the process as well as instilling confidence that was eroded when the country dollarized in 2009 to escape inflationary pressures, which ravaged the economy.
In his 2019 National Budget statement, Ncube announced the formation of Foreign Currency Allocation Committee.
Government sources who spoke to Business Times yesterday said the move is seen as part of efforts to dilute the Reserve Bank of Zimbabwe governor, John Mangudya’s hold on the apex bank as there is a section in the government opposing his stay as the chief executive. Mangudya was appointed the central bank governor in 2014, replacing Gideon Gono.
“I believe it is going to be an institution we can put our confidence in, the source said
“So when the Chairman of the monetary policy stands up and says this is what we are going to do we know he is going to do it and he is going to take charge. When it comes to introducing a new foreign currency in Zimbabwe, at least we know it is going to be managed professionally,” said the source.
Meanwhile during the Institute of Chartered Accountants of Zimbabwe (ICAZ) financial meeting held yesterday, Economist Eddie Cross noted the need to separate the monetary policy from the fiscal policy going forward.
In line with introducing new currency, Cross implored Government that the use of the South African Rand as a base currency would not fix the macro-economic challenges but rather a new domestic currency should be reintroduced while at the same time demonetising the bond notes.
“We should take note that the rand is already in use in the country, it is already an official currency but it is failing simply because it is not the people’s choice. Also, the rand is no different from the US dollar. The same problems we are facing right now with the United States Dollar will be the same problems we will face even if we introduce the rand. The reality is currency is important for economic growth,” said Cross.
Speaking at the same conference, former Finance and Economic Development Minister Tendai Biti said: “I suggest we need a new currency; I however don’t think the US dollar is sustainable in the economy. In a sense let’s learn from the GNU but I don’t think the model of the GNU is still workable because the US dollar has accelerated in value. When you trade with the US dollar it means that you are over-valuing your economy. So the cost structure of Zimbabwe is over-valued because of the US dollar. So I suggest we de-value our economy, we need to devalue our cost structure by introducing a weaker currency,” said Biti.
