Mthuli fails to resolve economic crisis

PHILLIMON MHLANGA

Finance and Economic Development Minister, Mthuli Ncube, last week delivered measures meant to stabilise the exchange rate and macro economy, but economists and business executives say lacked any attempt to deal sufficiently with current problems ravaging the economy such as excess liquidity and exchange rate.

They said Ncube never raised the issue around liquidity management, which is under his purview, which is driving up the exchange rate.

They said there was too much liquidity in the market, which is pushing the exchange rate. This has also caused prices of basic goods to go over the roof.

This week, the Zimbabwe dollar was trading at ZWL$1 404.80: US$1 on the formal market. On the parallel market, the Zimbabwe dollar was yesterday trading at ZWL$3000:US$1.

Ncube pronounced that local companies could now retain 100% of domestic foreign currency earnings. He also announced measures to strengthen the foreign exchange auction system and also lifted of all restriction on importation of basic commodities. He also said short-term interest rates would be raised.

Economist Gift Mugano told Business Times yesterday: “The Minister of Finance did not put measures to address excess liquidity which is a real challenge in Zimbabwe at the moment. He went quiet on that. This is an area where he was supposed to put more emphasis as that falls under his purview through the budget. So, for me I was expecting him to raise the threshold which is being paid to service providers in US dollars even to 100% in some sectors which are not big enough so that he reduces the recourse to black market. Even 80% or 90% or when there is enough liquidity in US$ take it to 100%. This reduces the participation of contractors on the black market as you are aware that we see them being blacklisted as they try to get US dollars from the black market after being paid in Zimbabwe dollars to preserve their value.”

He added: “ Civil servants are getting 52% of the budget in Zimbabwe dollars. I would have expected the Minister of Finance (Mthuli Ncube) to raise the threshold of salaries in US dollars going to civil servants.

“The minister has enough foreign currency they brag about, so let them use it now to save the situation for the next five to six months or so. But, they went quiet and that was a missed opportunity.”

A business executive who preferred not to be named told Business Times that Ncube did not address the real issue of excess liquidity, which is driving the runaway exchange rate, and triggering price hikes.

“When the rate is running away, we have no choice as business leaders but to raise our prices for us to be able to replenish stocks. Otherwise they will be forced to close or retrench workers,” the executive said.

Mugano said by announcing monetary measures, Ncube was interfering with the Reserve Bank of Zimbabwe, affecting the independence of the central bank.

“You know, any gun can shoot. But, you must always define efforts according to your mandate. So, the decision by the Minister of Finance to then announce monetary measures such as interest rates, exchange rate and how the auction must operate, which is under the purview of the Reserve Bank of Zimbabwe is fundamentally wrong,” Mugano said.

He added: “Its wrong because it shows lack of independence of institutions and it matters when it come to issues of confidence because it tells you that the central bank cannot give you any commitment without reversing it under pressure, particularly when you think of that they are issuing gold tokens as an example and they will be paying these in US dollars.

“What is the guarantee that the Minister of Finance will not come and reverse it and say pay them in Zimbabwe dollars because they bought them in Zimbabwe dollars.”

Mugano said Ncube was becoming a “super minister” after announcing decisions, which are trade-related and affects industry, which “should be under the purview of the Ministry of Industry and Commerce as well as the ministry of Foreign Affairs and International Trade”.

He said the move to liberalise the importation of selected basic commodities was disastrous as it was a reactionary or emotional decision.

Correct, the prices are going up, but what is driving the prices up?

“Is it the fact that business is profiteering or exploiting consumers? The reason why the prices are going up, it’s a function of exchange rate spikes caused by monetary phenomena and that was not caused by business. It’s caused by the Treasury’s excessive liquidity coming on the back of the national budget that we have had since 2018 to date and also printing of money by the central bank. And that has been driving the exchange rate. That is not disputed,” Mugano said.

He added: “Remember we don’t have electricity every day and the companies are using diesel generators using US dollar fuel. So, when we see a deepening of dollarisation and prices going up we say its business. I am not saying businesses are angels, but clearly at this stage I will defend business. And I have that right to do so because I don’t have a business to run. I run the knowledge industry.”

Mugano said the opening up of imports would never address the issue of stability.

“So our industry is going to close or scale down. So, that’s a wrong measure.”

Mugano, however, said the scrapping of 15% foreign currency sales was a good move and long overdue.

“It reduce money supply and improve the competitiveness of local businesses.

The only challenge is we are using the wrong gun to implement that,” he said.