Political interference characterises Mangudya’s first term
NDAMU SANDU
There are certain highlights that define John Mangudya’s first term at the Reserve Bank of Zimbabwe.
Firstly, he dispatched his maiden monetary policy statement to banking executives and the media via email and not in the level minus one room where his predecessor would hammer bankers and once called asset managers an “accident in waiting”.
Secondly, Mangudya said he would take RBZ ‘back to basics’ and the bank would
revert to its core functions—banker to Government, administrator of the national payment system, regulator of financial institutions, manager of Exchange Control, supervisor of bank use promotion and suppression of money laundering, lender of last resort and policy advisor to Government.
The former CBZ chief executive began his second and final term early this month at a time a plethora of economic challenges are besetting Zimbabwe. As Business Times reports, Mangudya’s first term was not a stroll in the park for the unassuming banker on his homecoming to the institution where it all began in 1986.
In his maiden Monetary Policy Statement, Mangudya said the roadmap was intended to spell out the necessary bold, robust and pragmatic monetary policy measures needed to pull the economy from the doldrums.
Banker and financial advisor to government
With effect from July 2014, RBZ reclaimed its role as banker to government with exchequer account moving from CBZ to RBZ. Under Mangudya’s watch Treasury Bills issuances increased to US$7,6bn by end of August 2018 from US$2,1bn in 2016. Treasury Bills to GDP ratio jumped to 36,5 percent by end of August 2018 from 4,4 percent.
According to Treasury, these TBs were issued through private placement unlike the auction system, which is more market-oriented and improves the process of price discovery and better pricing. Treasury reported last year that government’s overdraft at the central bank was US$2,3bn against the stipulated limit of US$762,6m in the eight months to August. Government borrowing from the central bank is capped at 20
percent of its revenue in the previous year.
An economist said Mangudya took the economy back to 2008 when he accepted to finance the budget deficit through domestic borrowing and borrowing from RBZ which government exceeded the limits.
“He did not have the guts to tell his fiscal bosses and advise them not to soil his job. He became a willing vessel used to pervert the law,” the economist said.
However, economist Persistence Gwanyanya said while the role of RBZ is to advise government, “you can only advise to a certain extent.”
Regulator of financial institutions
The banking sector has remained safe and sound. In his February Monetary Policy Statement, Mangudya said all banking institutions—except one—reported profits in F18 with aggregate profits up 61,06 percent to US$389,85m from US$241,94m in F17.
Mangudya announced a three-tier system in which banks have to choose a suitable class as per recapitalisation capacity. Top tier banks should have minimum capital of $100m, second tier banks at $25m while third tier banks require minimum capital of $5m.
Mangudya culls the NPL dragon
In 2016, a special purpose vehicle, the Zimbabwe Asset Management Company (ZAMCO) was established free the balance sheets of banks by buying bad debt for banks to lend again. This came after non-performing loans (NPLs) ratio reached 20,45 percent amid fears banks would cut back on lending. ZAMCO has assumed NPLs worth over US$1,1bn and is working to make sure that all bad debts are recovered
by 2025. However, RBZ has maintained a stranglehold on interest rates capping
it at 12 percent at a time annual inflation reached 66,80 percent in March.
Manager of Exchange Control
Until February 20, RBZ has maintained its stranglehold in the allocation of foreign currency. In 2016, RBZ came up with an import priority list to manage the scarce foreign currency. RBZ became the sole benefactor of foreign currency reserves. This saw some sectors such as fuel getting foreign currency at 1:1 at a time some generators of the
foreign currency were buying the greenback on the parallel market.
“We concentrated more on foreign currency allocation which in the end everyone was complaining. The allocation system was punishing the generators of foreign currency and favouring importers and killing innovation,” Gwanyanya said. The introduction of the interbank market in February was an attempt to respond to market forces although supply has not responded well despite the movement, according to a banker.
Bonding well with coins
In 2014, Mangudya introduced bond coins to ease challenges with change as the economy had operated without smaller denomination coins since the inception of the multi-currency regime in 2009. He would go a step further with the introduction of the bond note under the US$200m export incentive facility guaranteed by the African Export-Import Bank. Experts say the bond note chased away the greenback from the system since the two currencies were at par. He maintained the 1:1 parity between the bond note and US$ against advice that it would not work. By the time he removed the peg, the damage had been done: arbitrage was in overdrive. Finance minister Mthuli Ncube said in February that maintaining the parity cost government $2bn last year.
The Ides of March
Zimbabwe experienced 28 consecutive months under deflation from October 2014 to January 2017. The annual headline inflation, which had been largely trending below five percent for the greater part of 2018, spiked to 21 percent in October 2018 and further to 42,1 percent in December 2018, as inflation pressures builds in the economy. Annual
inflation raced to 66,8 percent in March. A banker who requested anonymity citing professional grounds, told Business Times that the fact that annual inflation has gotten to this level “is a cause for concern” and an illustration that RBZ has failed in its
mandate to ensure price stability.
It’s the politics, stupid!
Another top banker told Business Times that Mangudya deserves a 95 percent achievement rating as “this is not an easy economy due to exogenous factors”.
“Politics, sanctions, climatic aberrations and world economic events, of which Zimbabwe has no control over, remain collectively the elephant in the room against which the governor could not do anything about, even if he wanted to. Zimbabwe’s economy is highly susceptible to these factors more than anything that the Finance minister or
governor can do or say,” the banker said.
In his maiden Monetary Policy Statement, Mangudya said his roadmap was guided by the philosophy that when a central bank wins or loses a fight, it is the wider society which wins or loses. The jury is out.
