Mangudya’s MPS fails to solve industry crisis

LIVINGSTONE MARUFU

The Reserve Bank of Zimbabwe (RBZ) governor John Mangudya’s Monetary Policy Statement unveiled this week lacked any attempt to meaningfully resolve industry challenges, captains of industry said yesterday.

They said the measures do not instill hope that the central bank will help companies recover from the crisis.

Mangudya maintained  the interest rates, bank policy rate and the Medium Term Accommodation Facility interest rate  at the current levels of 60% and 40%, respectively.

The central bank also failed to address the problem of foreign currency  bids settlement.

“To be frank , the MPS just told us what they have been telling us all along. Nothing special was presented as interest rates and Medium Term Accommodation facilities remained the same.

“We told the governor that the industry did not get a meaningful  cushion as a result of Covid-19 but he maintained the same  rates that are hurting us,” the Confederation of Zimbabwe Industries president Kurai Matsheza told Business Times yesterday.

He added: “RBZ said it shall continue to fine tune the exchange rate policy which is premised on the foreign exchange auction system to focus on exchange rate flexibility and promotion of external competitiveness as well as tackling rent-seeking behaviour. But, there is nothing new as the governor did not give specifications on how he will do it.

“The exporters in the manufacturing sub-sectors shall be eligible to retain 100% of the incremental portion of their export receipts but it has always been the case so I don’t know the policy he was implying there.”

Mangudya also dropped the general public from the weekly US$50 facility from bureaux  de change, saying some people were abusing the facility.

Only pensioners,  the elderly and those living with disabilities can now access the facility.

Matsheza said removing the facility from the general public was a “huge mistake as the money was used for day to day use hence those who were benefiting will now go to the parallel market and push the exchange rate higher”.

An economist who preferred anonymity said:“ The governor saw it prudent to continue with old policy measures he announced in the last MPS in piecemeal.

The policy measures failed to help the industry last time, may be if they are implemented they may bring results.”

Economic analyst, Trust Chikohora said the monetary authorities lack implementation in their policy measures.

“If they fine tune the auction system and clear bids in time, sanity may prevail in the market but the problem has been on implementation and the governor has not stated out how he will refine the system.

“The forex auction system is a good platform but when it fails to give the business its money on time it becomes a challenge,” Chikohora said.

He added: “The maintenance of interest rates at 60% is not bad but following the carnage that Covid-19 caused there was a need to review them a bit.”

RBZ put in place tight monetary targeting framework  to sustainably anchor inflation expectations and curtail the speculative demand for foreign currency which has exerted pressure on the exchange rate and prices since the last quarter of 2021.

Mangudya reviewed downwards the quarter-on-quarter reserve money target to 7.5% from 10% for the quarters ending March and June 2022, which will be reviewed thereafter to curb rent seeking behaviour.

Matsheza however,  said the maintenance of statutory reserve requirements for demand/call deposits and savings and time deposits at current levels of 10% and 2.5%, respectively, to promote savings and time deposits was a good thing to do going forward.

Mangudya said foreign currency needs to be earned from foreign sources such as exports and remittances and competitiveness of local production becomes very essential to promote exports, and stability of the local currency is key to promote investment and for value preservation.

But Matsheza said  this has to go hand in hand with increasing forex retention levels.

“How can we increase  our export earnings when the manufacturing sector forex retention threshold  remain at 60%- 40%, with the auction taking four weeks and interest high as they are, the local industry will remain uncompetitive,” the CZI boss said.

He said building foreign exchange reserves to provide the necessary back-up support for the local currency to enhance its attractiveness through setting aside 5% of the foreign exchange available for the auction system is a good move but there is a need to improve industry viability.

Economist Gift Mugano said the Monetary Policy Statement did well to  address money supply, interest rates and refine the forex auction platform.

He said the measures will not yield the desired results if “Treasury continues to spend money on agriculture and construction”.

“As long as there is no cohesion with fiscal authorities the problems will remain the same as expenditure on agriculture and construction push the exchange rate up,” Mugano said.

“The country should raise long term bonds to finance roads construction and agriculture.”