RBZ sticks to its guns

THE Reserve Bank of Zimbabwe (RBZ) has insisted that authorities made the right decision in switching to publishing blended instead of exclusive Zimbabwe dollar inflation figures, as this reflected more accurately the situation in the domestic economy.

Zimbabwe now measures inflation using a weighted average of items priced in Zimbabwean dollars and US dollars (Blended inflation), the Government said earlier this month.

Previously, the official rate was based only on items in the local currency. However, ZimStat has been publishing blended inflation figures since June 2020.

The US dollar is widely used in the southern African country alongside the Zimbabwean dollar and to an extent the South African Rand, which is more widely used in the southern parts of the country.

President Mnangagwa gazetted Statutory Instrument 118A of 2022 in July last year, entrenching the multi-currency (US dollar and Zimbabwe dollar) system as previously announced by Finance and Economic Development Minister Professor Mthuli Ncube.

But the use of the US dollar in transactions has gained more traction across the country, including in the banking system where forex accounts for about 70 percent of total bank deposits, according to the central bank.

RBZ governor, Dr John Mangudya, said this on Thursday in an interview with Business Weekly, and this follows proposals by captains of industry, including the Confederation of Zimbabwe Industries (CZI) that authorities should continue to publish local currency inflation.

On February 4, 2023 the RBZ announced in its 2023 Monetary policy statement that the economy should focus more on blended inflation since the Zimbabwean economy had largely dollarised, with the bulk of expenditure now in US dollars.

But citing results of a recent Zimbabwe National Statistics Agency (ZimStat) survey, business leaders noted that approximately 76 percent of expenditure was now being conducted in US dollars across the economy.

This, they said, reaffirmed the notion that Zimbabwe was heading towards full dollarisation, the second time in just over a decade.

However, they argued that the dollarisation represented sectoral averages, as the ratios could actually differ significantly between individual firms and consumers, while a number of firms still have higher levels of exposure to the local currency and many consumers earn exclusively in Zimbabwe dollars.

Further, business leaders said while a blended inflation rate made sense in accurately defining the nature of inflation, it did not take away the need for publishing inflation rates of Zimbabwe and US dollar prices.

The Confederation of Zimbabwe Industries, the country’s largest business lobby, argued that Zimbabwe dollar inflation figures were “more useful to business for planning purposes based on their income and cost mixtures of US and Zimbabwe dollar expenditure”.

But Dr Mangudya insisted this week that it made little sense to publish exclusive Zimbabwe dollar inflation figures when large parts of the economy had dollarised, a fact buttressed by the results of the ZimStat survey.

“When we talk of average weighted inflation, it means just that, that it’s an average inflation based on known figures of both the Zimbabwe dollar and the US dollar (expenditure).

“Most parts of the economy have dollarised and we now use blended inflation because it reflects more accurately the situation on the ground. You find expenditure split of say 30 percent Zimbabwe dollar and 70 percent US dollars; that is the reality,” he said.

According to ZimStat, most parts of the economy have dollarised to degrees ranging from 90 to 99 percent.

Even the Government, Dr Mangudya said in buttressing why blended inflation made more sense, accepted payment of statutory obligations in both domestic

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and foreign currencies.

He also stressed the need to lean more on blended inflation, given that pricing in Zimbabwe is generally indexed to the US dollar, which is therefore the Zimbabwe dollar price of goods and services at any point.

While current Zimbabwe dollar inflation figures remain high, they give a distorted picture of the true inflation situation on the ground, Dr Mangudya said, with prices hardly increasing and only reflecting exchange movements.

Latest data show that Zimbabwe’s consumer price inflation eased to 92,3 percent year-onyear in February 2023, down from the prior month’s 229,8 percent and moving further away from August’s 18-month high of 285 percent.

The central bank chief’s assertions were backed by economist, Persistence Gwanyanya, who is also a member of RBZ’s monetary policy committee) who said the authorities were spot on in publishing blended inflation figures, as they reflected more accurately “the reality on the ground”.

“ZimStat is publishing blended inflation, as that is what is the reality in the market. The reality in the market is that an increasing number of transactions are now being done in US dollars; that’s the reality.

“The blended inflation is going to be realistic inflation for the country given the level of dollarisation currently, but I hear you when you say generalising may not be good, but for policy you cannot be meant for one or two (people).

“For most of the people in the economy, dual inflation is more realistic, but we understand that there are cases where (preparation of) financials (is) involved and accountants have to produce inflation-adjusted financials, so they need Zimbabwe dollar inflation figures.

“(There are other) extreme cases where wages are 100 percent Zimbabwean dollars, they need to be guided by Zimbabwe dollar inflation, I think it is something that policymakers might have to consider, but what concerns us is the issue of reality.

“That is to say; in the market,” most transactions are (now) blended, US dollars and Zimbabwe dollars, and that the usage of US dollars has increased,” Gwanyanya said.

SME Association of Zimbabwe chief executive, Farai Mutambanengwe, weighed in on the issues saying whilst the Consumer Price Index blended rate has been getting published by ZimStat for a while, not much attention was being paid to it.

He said this was because most economic agents were using the local currency inflation rate for decision-making. US dollar inflation was for the most part considered low and stable, and therefore not a relevant factor for decision-making purposes.

“When ZimStat first mooted the idea of using the blended CPI rate as the primary reference rate last month, we raised concerns as stakeholders, to which ZimStat responded that the Zimbabwe dollar inflation figure would still be available, but as a supplementary measure.

“To our surprise, a bare month later ZimStat has reneged on this pledge, with the blended CPI rate now being the only published figure, and no mention of ZWL inflation dynamics.

“The blended inflation figure is problematic in that it is an amorphic number, referring to no currency or lived experience for any particular individual, institution or entity. Inflation figures are generally with reference to a specific currency, not a contrived basket of goods of unknown composition.

“In any case, most goods currently have both (Zimbabwe and US dollar prices), so one wonders how the blended basket deals with such situations.

In practice, ZimStat can therefore choose any inflation figure between 10 percent and around 200 percent as the blended CPI, depending on how they nit-pick prices to include in their basket, and what they thumb-suck the blend ratio to be,” he said.

Giving his thoughts on the subject, economist, Dr Reneth Mano, said the business community should request the Government to publish all three CPIs (Zimbabwe dollar, US dollar and Blended inflation computed using empirically determined weights for that month.

“The USD-Zimbabwe dollar weights are changing every month and may in themselves become yardsticks for tracking monthly changes in dollarisation and efficacy of policy efforts to restore credibility and acceptability of the local fiat.

“Our collective focus as a business community must be on partnering with the Government of Zimbabwe in helping the monetary authority identify quick impact measures for making the Zim dollar Great Again and universally cheapest currency for doing business in Zimbabwe for both the business community and the consumers,” he said.