Reserve Bank of Zimbabwe (RBZ) governor John Mangudya today finds himself literally skirting on thin ice as he presents his first post-election monetary policy statement with all sectors of the economy looking up to him to swing the magic wand to end the current cash crisis.
In the past few weeks, prices of basic commodities and other services have shot through the roof as the surrogate currency, bond note kept plunging deep into the abyss, amid growing calls for its decommissioning as legal tender.
Everyone, from government institutions, businesses to consumers, is anxious to have three questions answered; whether the bond note is being scrapped or staying put; whether the economy will be de-dollarised to adopt the South African rand or continue with the current multi-currency regime.
Sparked by new Finance minister Mthuli Ncube three weeks ago, the debate remains inconclusive and has created uncertainties, partly driving an active parallel market trading in both foreign currency and bond notes and coins.
A shortage of cash in circulation and foreign currency to finance financial transactions has savaged the economy and left the nation at the mercy of money barons operating the parallel market, where rates keep trending upwards.
The underground market has devalued the bond note by more than 100% after the RBZ failed to defend its infamous $1bond/US$1 peg owing to low reserves, estimated at just about two weeks of import cover since 2015.
Yesterday, Mangudya while giving little away, said he would stick to his mandate, putting on a brave face despite the grim situation.
“Indeed, we will present the monetary policy tomorrow (today). It is not a political statement from which you can speculate, but we will announce measures to deal with issues in the market such as inflation. Our mandate is to deal with stability of prices and bring sanity to the financial services sector,” Mangudya said.
Asked if the bond note was not the problem, Mangudya said: “It is a media fallacy that we have time and again tried to explain, but we have people who seem to have their minds set on a negative perception of things. The bond notes do not increase money supply which is the major driver of inflation. Our problem is too much money chasing too little foreign currency. If you look at it, the parallel market rate for Real Time Gross Settlement (RTGS) or other electronic transactional platforms is much higher than that of bond notes and we cannot, therefore, argue that we must remove this in order to bring order,” Mangudya said.
“This is why we are arguing for increased production and exports, that’s the way to go and we must stimulate that side of our economy.”
Business leaders and economists yesterday voiced their concerns and expectations, which all dwelled on the future of dollarisation and the bond note.
President of the Confederation of Zimbabwe Industries (CZI) Sifelani Jabangwe said members of the business association were eager to “know where the multi-currency issue is going”.
He revealed that the issue came under discussion during the CZI annual congress held in Bulawayo last week.
“The issue was discussed during the congress. There are concerns over the reintroduction of the local currency, there are also concerns over the availability and cost of foreign currency. Now that the tobacco auction floors are being closed, there are questions about how the foreign currency gap is going to be closed,” Jabangwe said.
“We also touched on options. One of the options proposed is to promote the increased use of the rand because it’s more readily available from neighbouring South Africa. We have options on what can be done. What we don’t have is consensus. We need to sit down and come up with a common position.”
Economist John Robertson said Mangudya needed to deal with the desperate financial crisis.
“He needs to deal with the money supply growth. It has to be tamed because at the moment it is growing at 10 times more than the rate at which the economy is,” Robertson said.
Government economic adviser and University of Zimbabwe lecturer, Ashok Chakravarti, said the foreign exchange crisis should be Mangudya’s priority.
“I really would not want to say much suffice to say the governor needs to deal with the exchange crisis. There are also reforms that we need to undertake and a foundation must be laid in this regard. Otherwise we wait to see what he has, then we can comment,” Chakravarti said.
Former Finance minister and opposition MDC Alliance deputy chairperson Tendai Biti, however, accused government of fuelling the instability in the market.
“The chickens are coming home to roost. The economic depression is simply imploding. Companies shutting down [and] downsizing, the exchange rate has gone crazy, as inflation hits the roof (while) the printing press now in overdrive. You can rig an election, but you can’t rig the supermarket,” Biti said on Twitter.
Reports have claimed Mangudya’s job was on the line in the aftermath of sweeping changes by President Emmerson Mnangagwa that saw former Finance minister Patrick Chinamasa replaced by renowned economist Ncube, while banker George Guvamatanga took over as Treasury secretary in place of long-serving Willard Manungo.
The rumour mill went into overdrive two weeks ago after Mnangagwa reportedly made two unscheduled visits to the RBZ just before his sojourn to New York for the United Nations General Assembly gathering.
Mangudya’s first term as the central bank governor will end in February next year having been appointed in 2014 by former President Robert Mugabe to replace his predecessor Gideon Gono, whose tenure will be remembered for sinking the country’s economy.
Mnangagwa at the weekend sounded positive on his return from New York and in a post on his Facebook said the future looked bright.
“We have truly opened a new chapter in our relations with the world. In this new era, and in partnership with the international community, the sky is the limit. Zimbabwe is back on the map!” Mnangagwa said.
The President added that his engagements with world leaders would help turnaround the country’s fortunes.
“Those we met were impressed by the bold economic and political reforms we are undertaking, and our commitment to bringing progress, prosperity and real change to Zimbabwe,” he said.
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