RBZ walks the talk on fiscal discipline
WHAT we are going through as a country is not peculiar to Zimbabwe. At one point Zambia went through a period where their local currency ceased to be the preferred legal tender for the transacting public, but if you go there today, it is different. I went there on a work-related visit, and when I wanted supper, I walked into a restaurant with my US$10. I slept on an empty stomach after they told me to bring their Zambian kwacha”.
These were the words of inspiration from Reserve Bank of Zimbabwe (RBZ) Governor, Dr John Mushayavanhu while addressing business delegates in Mutare last week.
As he answered questions from the delegates, Dr Mushayavanhu emphasised on the need to instil fiscal discipline to extricate the country out of the current economic quagmire. Fiscal discipline dictates that governments maintain fiscal positions that are consistent with macroeconomic stability and sustained economic growth.
To this end, it warrants avoiding excessive borrowing and debt accumulation.
Accordingly, money supply growth on the market is one pertinent thing that he promised to maintain during his tenure at the Central Bank.
“It is an issue that we need to solve once and for all. Previously, our money supply was growing because of what we call quasi-fiscal operations.
“Let me explain all this, in case some of you will look at it in bad light. The country was under sanctions and Government could not borrow in its own right.
“Lenders who were at least willing to assist us as a country came up with a way to lend to the Central Bank. When you lend to the Central Bank, it is an entity that does not generate income, and the only way it could generate that income was by printing money.
“So what would happen is that as those loans were being repaid, the Central Bank would buy foreign currency from the market and credit the exporters’ accounts with RTGS, which in itself is printing money. But it was all for the good of the country.
“Most of you were saying they are seeing growth in the economy, yes, it was all because of that,” he said, hence the need to stop the printing of money forthwith.
“The Central Bank has pushed some liabilities to treasury, and they are being serviced through tax collections, thereby reducing pressure on it and that is why we say there will be no more money printing, and we mean it,” he said.
Dr Mushayavanhu noted that some improvements are already happening in the economy.
“There has been a lot of retooling. I was in Bulawayo last week. Belmont used to be an industrial hub just after independence. In the last 10 years all those industries had been converted into churches, but in the last three years, the buildings are becoming factories again. There is a lot happening there,” he said.
Dr Mushayavanhu also emphasised on the need to rebuild trust and confidence on the market.
“There is need for policy consistency and restoration of trust and confidence. I am on record saying confidence and trust cannot be legislated. I cannot stand here and say trust me. The only being that you can trust is God. But what we can do best as the Central Bank is to walk the talk.
“What we say we will do, we have to do it, and with time people will trust us. That is the journey we have embarked upon. We announced the Monetary Policy Statement on April 5, and have insisted that there will be no flip-flopping,” he said.
Dr Mushayavanhu said to ensure policy consistency, the Central Bank has established a Monetary Policy Monitoring Committee that has come up with a dashboard that tracks every parameter mentioned in the Monetary Policy Statement.
“The Monetary Policy Monitoring Committee is looking at it daily, to see if we are complying. It is either green, amber or red. If we are getting near the ceiling, warning bells start ringing and we will do something about it.
“Over time you will then come to trust us. Once we perfect this dashboard, we will make it public so that on a month or weekly basis, we will be saying these are the parameters.
“The committee will meet on a quarterly basis to take stock as to whether we are living up with the Monetary Policy Statement we would have announced,” he said.
He allayed fears that the gold meant to back
the new currency was not there.
“We showed you the gold that we have because some of you thought that it was a very small portion. Manicaland is a gold producing province and I am sure some, if not all of you have tried to lift various amounts of gold.
“In that vault, there is 1.5 tonnes of gold. Another one tonne is offshore and the difference of 250kg was in the form of other minerals like diamonds and so forth, waiting to be converted to gold value,” said Dr Mushayavanhu.