Fresh headache for authorities

CLOUDINE MATOLA

Monetary and fiscal policies authorities are struggling day and night to come up  with new measures to shore up the  ailing economy and ensure there is price stability and  rein in the uncontrollably high rate of inflation and runaway exchange rate, Business Times can report.

This week, several economists told Business Times that the monetary and fiscal authorities are facing fresh challenges as a result of the collapse of the Zimbabwe dollar, which has destroyed businesses  and brought down the economy to its knees.

According to  analysts, the government’s attempt to stabilise  the Zimbabwe dollar by introducing  gold coins and the digital currency  were a complete failure as the local currency  continues to depreciate relative to the greenback and other major currencies,  causing a fresh headache for the authorities.

President Emmerson Mnangagwa made a suggestion a few days ago that fresh measures would be introduced by the government to stabilise the currency, as the value of the Zimbabwean dollar continues to decline in relation to the greenback  and other major currencies.

According to President Mnangagwa, the government was planning to implement a structured currency.

Minister of Finance, Economic Development, and Investment Promotion Professor Mthuli Ncube said  the government plans to implement new policies that will create a currency board and tie the exchange rate to tangible assets like gold.

Economist Vince Musewe said the government needs to start establishing political and economic stability because all of its attempts to stabilise the currency have failed.

“Yes, clearly whatever solutions they have had to date have not worked. So they need to try new ways to solve the problem. “Those are the things that build confidence otherwise we will be back here again six months later saying now we want to stabilise because the currency reacts to what is happening. It’s not the root cause, it’s the symptom of what is happening in the economy and as long as we do not begin to address the root causes we will continue to have currency instability,” Musewe said.

He went on to say that the government has been dealing with currency issues for years, and that no matter what solutions have been tried, the true issue is not with the currency.

“We have had the currency problem for years and whatever solution we come up with to stabilise the currency is not sustainable because sooner or later things will start to happen again and we have to relook at the currency, which means we are looking at the wrong thing,” he said. 

According to Victor Boroma, an economic analyst, the government needs to consider important reforms in order to stabilise the economy because all of the monetary policies that have been implemented in recent years have not changed anything.

“Well, the evidence on the ground is that we do not have currency stability or even economic stability at the moment. The economy is actually very volatile and we have got a challenge where the local currency is depreciating by the day and we are actually back to hyperinflation. 

“So which means that the monetary policy that has been implemented in the past five years has not actually managed to yield the desired results. That’s the reason why probably the government is trying to change the name, is trying to change strategy. 

“But ideally, priority should have been given to reforms that are key. For example, limiting government expenditure such that the government does not abuse the central bank overdraft facility,” he said. 

Boroma added: “When you look at the situation on the ground, the buying power for the local currency, the purchasing power, and even the level of inflation is actually going up, which means that the desired results have not been achieved,” he said. 

Boroma said the government should end all quasi-fiscal operations done by the Reserve Bank of Zimbabwe (RBZ) and there is a need for a market driven exchange rate. 

“Then secondly, to end all quasi-fiscal operations that are being done by the central bank, that obviously creates the need to print money and obviously mop the limited foreign currency, which is on the market. 

“Then number three, to have a market driven foreign exchange. Market which improves supply from various exporters, even recipients of foreign currency on the domestic market,” he said. 

In addition,  Boroma said there is no need for parallel funding via the central bank. 

Furthermore, Boroma said these reforms are quite key before there are any changes to the currency name, because the problem is not necessarily in a currency name. It is actually the fundamentals that bring stability to that particular currency. 

Economist Dr Prosper Chitambara concurred  saying the gold coins and digital currency  have failed to stabilise the Zimbabwe dollar.

“I think the gold coins and the digital dollar in terms of their uptake buying despite the ordinary citizens, were very low on the lower side so I think that also affected their effectiveness.  

“I think most of the people that invested in this gold coins and digital dollars were institutional investors or the big corporates so obviously any kind of currency is utility is a function of its general acceptability so yes that could have affected the Zim currency. It was not generally or widely accepted by most economic agents especially the ordinary households,” he said. 

Another economist, Brains Muchemwa told Business Times that: “The gold coins and digital dollars haven’t been able to mop the Zimbabwe dollar liquidity to the extent of stabilising the exchange rate.

“As long as there is no functional demand for the Zimbabwe dollar, stabilising the exchange rate remains difficult. Moreso when the central government has consistently preferred to transact in United States dollars ahead of the Zimbabwe dollars. Unless the government takes a radical approach to embrace the Zimbabwe dollar and create demand for it by accepting all taxes in local currency, stabilising the exchange rate will remain an elusive target.”