In a show of confidence, Zimbabwe President Emmerson Mnangagwa has given a vote of confidence to the Reserve Bank of Zimbabwe (RBZ) Governor, John Panonetsa Mangudya by giving him a second 5 year term in office. Below is a press statement from the Chief Secretary to the President and Cabinet, Misheck Sibanda confirming Mangudya’s contract extension.
After the expiration of a Government of National Unity between Robert Mugabe’s Zanu PF party and Morgan Tsvangirai’s Movement for Democratic Change (MDC) in 2013, the Zimbabwe government’s financial indiscipline created twin economic evils in the form of monetary and fiscal imbalances. Mangudya was first appointed to the position of RBZ Governor in March 2014, replacing Gideon Gono, who was in charge of RBZ during the country’s decisive election year of 2013. Mangudya commenced his duties at the helm of the country’s apex bank on 1 May 2014.
With a modest national population of 16 million people, Zimbabwe inherited an albatross of challenges from the Mugabe era, largely characterised by fiscal indiscipline. In the height of the country’s hyper inflationary era in 2007, Zimbabwe would reach a record 500 billion percent annual inflation rate. Below are key highlights of Mangudya’s first 5 years at the helm of Zimbabwe’s Apex bank.
Introduction of Bond Note Export Incentive
In 2016, the RBZ introduced the bond note in an effort to incentivize exports and to ease liquidity challenges that were affecting the economy. The bond note was introduced at 1:1 exchange rate with the USD and a fixed exchange rate regime was maintained. The export incentive was initially US$200 million, backed by an AFREXIM Bank facility of a similar amount, and an additional US$300 million was pumped in, monetized by bond notes, making a total of US$500 million in additional money created and introduced into the economy. The success of bond notes in Zimbabwe is unsettled as stakeholders and analysts continue to give conflicting views to this day.
Record Tobacco Deliveries to Auction Floors
In 2018, on day 100 of the tobacco selling season in Zimbabwe, a record 249.1 million kilogrammes of tobacco were delivered to the auction floors, with revenue reaching US$728,75 million. During the same season, a total of 122 520 farmers were registered to sell the golden leaf, 45.5% up from 84 221 in the prior year. Authorities attributed the success of Zimbabwe’s 2018 tobacco season to the foreign currency earnings incentive to the farmers, funded contract farming schemes in the country, and lastly, the tobacco export incentive introduced by the RBZ.
Offshore Business Borrowing Facilitation
During the fixed exchange rate regime, businesses were encouraged to borrow offshore with the assurance that the debt will be extinguished at 1:1 exchange rate. After the February 20 monetary policy pronouncements which introduced a foreign exchange interbank market, offshore borrowings by businesses were inflated overnight. Assurances were given by authorities to ring fence these legacy borrowings and assist affected firms accordingly.
Separation of Nostro FCAs and RTGS FCAs
On 1 October 2018, the RBZ, through its 2018 Mid-Term Monetary Policy Statement, separated Foreign Currency Accounts (FCAs) into two categories, Nostro FCAs and RTGS FCAs. This, however, brought a huge shock into the economy which destabilised prices. Economic agents interpreted this signal by RBZ as an attempt to devalue their RTGS and bond notes balances, and an acceptance to the fact that bond notes and USD are not at par in value. Year on year inflation rose from 5.4% in September 2018 to 20.9% in October 2018 as a result of this policy adjustment which triggered panic buying.
Criminalization of Foreign Exchange Trade
A booming parallel foreign exchange market in the country forced monetary authorities to criminalise foreign exchange trade on the alternative market. This worsened the foreign currency situation in the country with companies failing to restock raw materials and commodities in time.
Barring the 2% electronic tax introduced by the country’s Finance Minister in October 2018, Mangudya’s first term in office coincided with the growth of micro financial solutions in Zimbabwe. Zimbabwe’s marginalized societies and informal traders were included into the country’s financial services ecosystem through mobile banking solutions. This was a major positive for Mangudya’s first term in office as Zimbabwe’s economic growth is largely leveraged on the economic upliftment and financial inclusion of its rural and marginalized communities, ENN asserts.
Introduction of Foreign Exchange Interbank Market
On 20 February 2019, RBZ announced its Monetary Policy Statement wherein, major policy measures relating to the liberalization of the foreign exchange market and the establishment of the interbank market were introduced. The interbank market was viewed as a move in the right direction by business and commerce in addressing the country’s foreign currency challenges if allowed to operate on a willing buyer willing seller basis. Currently, the interbank market rate still trails the black market rate, an indication that the interbank rate is not exclusively determined by forces of demand and supply.
Key Issues to be addressed under Mangudya’s Second Term in Office
- Rebuilding market confidence in the country’s monetary policies and the financial services sector at large.
- Assisting vulnerable financial institutions and local firms in clearing offshore legacy debts accrued before the liberalization of the foreign exchange market.
- Addressing the foreign currency situation in the country to rescue firms that are struggling to restock and retool.
- Proffering a lasting solution to the country’s persisting bank queues.
- Keeping the country’s annual inflation rate at acceptable levels.
With the above performance highlights, it is up to Zimbabweans to judge Mangudya’s performance in his first term at the helm of the country’s Apex bank.