Enormous challenges lie ahead for Zimbabwe

HARARE – Reserve Bank of Zimbabwe (RBZ) governor John Mangudya announced that the apex bank will soon print and mint ZWL$1.5 billion worth of notes and coins following the abandonment of the multicurrency system for the use of the domestic currency.

Government has outlawed the use of a basket of foreign exchange which was mainly dominated by the United States dollar, effectively ending a monetary regime which was introduced 10 years ago to tame inflation.

To manage the supply side, the RBZ which had few instruments on its disposal to manage inflation soon after dollarisation, said it would drip-feed the new money into the economy.

Clearly, this measured approach is part of the central bank’s attempts to assure the market that it will not run the printing press overtime.

Discipline on this front will be the central bank’s biggest challenge.

After all yesteryear memories of excessive money printing which eventually fuelled inflation to record levels are still fresh.

The apex bank also made the same promise when it introduced bond notes 2016 which were launched as an export incentive.

Within, months the surrogate currency which later turned to be the official currency according to Statutory Instrument 142 of 2019, was flooded in the market.

However, government can this time be given the benefit of doubt given that bond notes were introduced under a different administration which was led by long-time leader Robert Mugabe.  

The International Monetary Fund, which approved the central bank’s new Staff Monitored Programme (SMP) stressed the importance of an autonomous apex bank.

Government requested an SMP covering the period May 15, 2019 to March 15, 2020.

The announcement by the central bank also presents seigniorage opportunities for the bank but discipline on the part of the bank is imperative while fiscal consolidation by containing the wage bill, reducing transfers to SOEs and improving the design of agricultural subsidies, while protecting vulnerable households and infrastructure spending remains a top priority for the Treasury.

Government currently has limited room to manoeuvre due to limited access to external financing and the very low level of international reserves.

While the central bank made this announcement the Zimbabwe Stock Exchange which had advanced 4.6 percent after the gazetting of Statutory Instrument 142 of 2019 shed off 5.37 percent as currency debate rages on.

The drop also came after new ZSE regulations stating that investors holding on to dual listed stocks can only dispose of them after 90 days.

Resultantly major losses were recorded in PPC, Old Mutual, Meikles and Art Corporation.

For local farmers and other economic subsectors, the restoration of the local unit will pile more pressure on the fiscus to finance sectors that hitherto been receiving adequate funding. Emotive issues around the land reform programme which

was carried out to correct colonial legacies continue to stifle funding on agriculture which at peak in 1995 was the mainstay of the economy.

While the dollarisation is credited for restoring macroeconomic stability after hyperinflation which ended in 2009, the economy deteriorated sharply after 2015 with high deficits financed through the issuance of quasi-currency instruments from the Reserve Bank of Zimbabwe.

Enormous challenge lies ahead. Econometer Global Capital

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