Zim on path to currency re­forms:

The Sunday Mail (Zimbabwe) - - FRONT PAGE - Busi­ness Re­porter Tawanda Musarurwa

AS­SET man­age­ment and fi­nan­cial ser­vices firm, Zim­nat, says pre-ma­ture de­val­u­a­tion of real time gross set­tle­ment (RTGS) dol­lars could cause ir­repara­ble dam­age to con­fi­dence, na­tional sav­ings, fi­nan­cial sec­tor and the econ­omy in gen­eral.

Zim­nat made the ob­ser­va­tion in its re­view of Fi­nance and Eco­nomic Devel­op­ment Min­is­ter Pro­fes­sor Mthuli Ncube’s 2019 Na­tional Bud­get State­ment, which was pre­sented on the 22nd of Novem­ber.

The RTGS dol­lars and bond notes re­main the ma­jor forms of money in Zim­babwe’s multi-currency sys­tem, with the US dol­lar be­ing the currency of ref­er­ence or ac­count­ing.

How­ever, be­cause of the USD’s acute short­age, there has been a grow­ing cho­rus for dereg­u­la­tion of the ex­change rate regime where Gov­ern­ment has main­tained the rate be­tween the USD and RTGS/bond notes at 1 to 1.

This was in­formed by the fact that the black mar­ket for forex has been de­ter­min­ing the bench­marks for ex­change rates, of­ten re­sult­ing in un­pre­dictable swings that once saw rates for the USD and RTGS dol­lars/ bond notes shoot up by over 400 per­cent.

Some an­a­lysts be­lieve dereg­u­lat­ing the for­eign ex­change regime could help stabilise mar­ket rates and al­low the mar­ket to prop­erly price goods and ser­vices sold in Zim­babwe.

How­ever, Zim­nat be­lieves that na­tional currency re­forms must only be un­der­taken af­ter the do­mes­tic econ­omy and its mar­kets, which have re­cently been dogged by spi­ralling in­fla­tion on the back of wild ex­change rate swings on the black mar­ket, have sta­bilised.

“We strongly be­lieve that con­trol­ling the money sup­ply growth and mop­ping up the ex­cess RTGS liq­uid­ity is crit­i­cal for the sta­bil­i­sa­tion of the currency mar­kets, in­fla­tion and the over­all econ­omy.

The re­marks by the As­set man­agers come at a time when some sec­tions of the so­ci­ety have ex­pressed dis­ap­point­ment at the fact that Prof Ncube, in his Bud­get State­ment, did not di­rectly deal with currency chal­lenges as ex­pected by many peo­ple.

“Eco­nomic stake­hold­ers were ex­pect­ing big and bold pol­icy pro­nounce­ments, es­pe­cially around the currency re­forms and RTGS value preser­va­tion, but clearly the Min­is­ter of Fi­nance held back,” Zim­nat said.

“Pre­ma­turely de­valu­ing RTGS dol­lars, un­der the cur­rent un­sta­ble macroe­co­nomic en­vi­ron­ment, may cause ir­repara­ble dam­age to con­fi­dence, na­tional sav­ings, the fi­nan­cial sec­tor, and the over­all econ­omy.

“We there­fore agree with the Fi­nance Min­is­ter that currency re­forms must be un­der­taken only af­ter the econ­omy and its mar­kets have sta­bilised,” said Zim­nat

These sen­ti­ments are in line with what Prof Ncube said in his Bud­get State­ment.

“The pri­mary ob­jec­tive of the Bud­get is to stabilise the econ­omy by tar­get­ing the fis­cal and cur­rent ac­count twin deficits which have be­come ma­jor sources of over­all eco­nomic vul­ner­a­bil­i­ties, in­clud­ing in­fla­tion, sharp rise in in­debt­ed­ness, ac­cu­mu­la­tion of ar­rears and for­eign currency short­ages. Gov­ern­ment com­mits to pre­serv­ing the value of money bal­ances on the cur­rent rate of ex­change of 1 to 1, in or­der to pro­tect peo­ple’s sav­ings and bal­ance sheets.

“It is im­por­tant to note that this value preser­va­tion ar­range­ment is hinged on con­sis­tent im­ple­men­ta­tion of pru­dent fis­cal and mon­e­tary poli­cies, as well as dis­ci­plined mar­ket con­duct by all eco­nomic agents as es­poused in the Tran­si­tional Sta­bil­i­sa­tion Pro­gramme.

“Pre­cisely, this Bud­get is con­sol­i­dat­ing the value preser­va­tion roadmap through macro-fis­cal con­sol­i­da­tion mea­sures. And in­deed, im­ple­men­ta­tion of such mea­sures has started.

Prof Ncube ex­plained this fur­ther dur­ing a pro­gramme aired on Zim­pa­pers’ owned ra­dio sta­tion Star FM, The Min­is­ter’s Desk, which is hosted by Linda Muriro.

The Fi­nance Min­is­ter said cer­tain fun­da­men­tal vari­ables drive the value of a currency and as you in­sti­tute currency re­forms, you must strengthen those vari­ables.

“What have we done with this Bud­get is that we have dealt with the is­sue of bud­get deficit, that’s our prob­lem num­ber one. Fix­ing that will help us cre­ate the right en­vi­ron­ment for sus­tain­able currency re­forms.”

Ac­cord­ing to Zim­nat, Prof Ncube chose to take the long (and con­ser­va­tive) route in terms of currency re­forms, given its com­plex­ity, through ad­dress­ing the twin deficits first.

These are the root causes of the cur­rent currency and eco­nomic in­sta­bil­ity.

“The Min­is­ter, through his Bud­get, be­lieves that ad­dress­ing the bud­get and trade deficits will pro­vide a stronger plat­form upon which to tackle the more com­pli­cated currency re­forms nec­es­sary to move the coun­try for­ward,” Zim­nat said.

For­mer Uni­ver­sity of Zim­babwe eco­nom­ics lec­turer, Pro­fes­sor Ashok Chakra­vati is also on record say­ing the first step to­wards eco­nomic re­forms is through con­trol­ling the fis­cal deficit in a man­ner that pre­serves the value of sav­ings.

“It is the ab­so­lute amounts of the deficit that are desta­bil­is­ing the econ­omy, and I am happy the Min­is­ter of Fi­nance is deal­ing with that in both the Tran­si­tional Sta­bil­i­sa­tion Pro­gramme and the 2019 Na­tional Bud­get,” he said.

Re­ha­bil­i­ta­tion of the Harare-Beit­bridgeChirundu high­way will see 70 per­cent of the fund­ing com­ing from the do­mes­tic mar­ket, Fi­nance and Eco­nomic Devel­op­ment Min­is­ter Mthuli Ncube has said.

Pro­fes­sor Ncube

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