PHILLIMON MHLANGA
A nervous John Mangudya, the Reserve Bank of Zimbabwe governor, last Friday displayed a lamentable sense of powerlessness as he entered an almost full business breakfast meeting at the Sango Conference Centre at Cresta Lodge Hotel to dissect his Monetary Policy Statement (MPS), presented two days earlier.
Mangudya delivered new monetary reforms that created a local currency called real time gross settlement (RTGS) dollar, constituting the bond note, coins and RTGS balances.
Zimbabwe’s currency troubles have undermined President Emmerson Mnangagwa’s efforts to turn around the economy and attract foreign investors.
Consequently, the government is struggling to regain trust from its long-suffering citizens, meaning many doubt the newly introduced discounted currency which Mangudya hopes would deal with the chronic crisis that has left people struggling to buy basic goods.
In tow was Finance and Economic Development Minister, Mthuli Ncube, who in the eyes of some remains a typical enigma. His fiscal policy, released last October, triggered a runaway inflation which now stands at over 50%.
Some critics are asking whether the learned Treasury boss has what it takes to achieve a breakthrough in resuscitating the economy. Others, however, view Ncube as a brain box with quick wit.
Mangudya and Ncube glared at the cacophonous business leaders in the Sango auditorium. They had no idea how the restless economists and business leaders would take the MPS.
You can pardon the duo who are charged with managing Zimbabwe’s economy, especially Mangudya. His critics see him as nothing more than a “lame duck” governor who does not have the power to influence or control the exchange rates as his first term ends in April.
Analysts say Mangudya and Ncube, who reportedly had a bitter fight over how to deal with the currency crisis, have the responsibility to engage with economists and industry leaders and come out with solutions for the country’s economic crisis. The two denied they clashed over the new currency.
But Mangudya admitted: “We need to look for a fine balance between fiscal and monetary policies to ensure that this country does not go into recession.”
His monetary policy, some analysts said, has brought a semblance of stability in prices over the past week and is expected to push down inflation before the end of this year. Ncube, on his part, said the government needed the monetary policy to run the economy efficiently and deal with distortionary prices. “We needed to reform, to deal with the exchange rate system,” the Finance Minister explained. “We used to run with one leg, that’s the fiscal policy to manage the economy. Now, we have another leg, the monetary policy, which should help deal with the crisis in the economy.
“A fixed exchange rate system is expensive. It cost us about $2 billion a year because we were using the US dollar as a transactional and trading currency. It was not sustainable so we had to move to a market driven system.”
Mangudya said the central bank was exploiting exporters and consumers by insisting on a 1:1 exchange rate, and maintaining the shadow exchange rate was a disaster, given that hell broke loose when inflation surged to 42% last December.
According to Mangudya, exporters and consumers would benefit from the managed float. “What we were missing is the official exchange rate,” he explained. “It was a street rate that we were using. It means a lot to the consumer now because we are preserving value of their money. The exporters are now getting a fair price. There is no loss of value to them. They are going to retain value. “I was guilty as charged taking somebody’s [the exporter’s] money at 1:1 when prices in the parallel market were going up, fuel going up and everything going up. It meant that we were giving them 60% of their money. So we needed to ensure that it came to pass. Because of those changing fundamentals, it was obvious that we needed to change.”
Now local banks have been empowered, he said, as customers can now talk to banks without coming to the RBZ for forex, while forex dealers have an opportunity to formalise their businesses by opening bureaux de change. Analysts welcomed Mangudya’s decision to abandon the unrealistic 1:1 peg between the RTGS dollar and the US dollar but called for safeguards for the measures to work. “The governor has made bold decisions,” the economist Ashok Chakravarti said. “The liberated exchange rate is the best mechanism. But we still have a long way to go. We have a long road. I fully endorse the measures but the governor must be cautious and put in safeguards. We now need restrictions on capital and current transactions.”
Another economist, John Robertson, said the measures showed that “we have a government that respects markets. But we still have a selfinflicted handicap. We destroyed the collateral value of land. We took away the security value. We disabled the land. We can get out of our wheel chair by putting the land back into the market and this will put agriculture back on its feet,” he said.
Ncube concurred with Robertson saying: “John is spot on. True, we created a bad asset. We need that productive value that we have lost on the land. The 99-year lease issue needs to be sorted out and create comfort. We have an asset and a liability, that’s a balance sheet. We can actually launch a land bank. We need to move fast and the government needs to sort that one out. That’s the first order of business.”
