Ncube has few options to stimulate growth

Finance minister Mthuli Ncube is today expected to present the Mid Term Fiscal Policy at a time Zimbabwe’s economy is in limbo.

The economy is facing serious headwinds such as flatling exports, intermittent power cuts, rising inflation and erratic fuel supplies.

Last week Ncube told delegates attending the just-ended Confederation of Zimbabwe Industries that there will be no more surprises on fiscal and monetary policies.

He said government will focus on macro-economic indicators such as rising inflation and defending the value of the domestic currency. Year-on-year inflation rose to 175.66 percent as at June and is expected to maintain this trend.

Over the past month the local unit devalued by 41.57 percent to $9.16 against the greenback on the official interbank market due to sagging exports and low business confidence.

On June 24, government abandoned the multicurrency system which was introduced in 2009 to tame runaway inflation. The post mono-currency foreign exchange rate stood at US$1:ZW$6.47.

In February, the central bank abandoned the 1:1 between the bond note
and the US dollar announcing an interbank market where the currencies
would be traded.

“Let me reiterate that no major policies are expected but what is remaining is to consolidate these gains through fine tuning the foreign currency market to enhance its efficiency and reduce variations across banks and bureau de changes and licensing of more foreign currency dealers and Bureau de Changes to enhance foreign currency mobilisation from the market. Once the market become efficient, I expect the local currency to appreciate,” Ncube said.

While Ncube’s sentiments assure market players of policy inconsistencies, it is our view that treasury compliments the central bank by defending the value of the local currency.

 One of the reasons why the interbank market is failing to run efficiently is that the apex bank is not allocating adequate foreign currency to the system despite it announcing that it is receiving over $3 billion in export receipts. By allocating at least 50 percent of foreign exchange it receives, Zimbabwe’s interbank market can become more efficient.

RBZ governor recently said just over US$700 million has been traded on the interbank market. The growing disparity between the formal exchange rate and the parallel market reflects on the market’s appetite for foreign exchange. Zimbabwe is a net importer.

The Finance minister is also expected to go beyond the rhetoric in terms of addressing the country’s debt issue. Zimbabwe is in debt distress and this has pushed the cost of borrowing for the southern African country which is considered to be a high risk nation.

Treasury faces a Herculean task in turning around Zimbabwe’s economic fortunes in the absence of a stimulus package which is backed by strong economic reform and goodwill.

Related Articles

Leave a Reply

Back to top button