Monetary Policy is defined as an attempt to achieve broad economic goals by the regulation of the supply of money. The 2018 Monetary Policy Statement (MPS) was prepared on the narrative that Zimbabwe is “open for business”. This narrative gave every stakeholder to conduct business in a manner that promotes investment in the country. This was suggesting that lack of investment, is the mother of problems and a hindrance of Zimbabwe’s recovery efforts.
President, Emmerson Mnangagwa, tabulated that limited capital flows brings a poor investment and business environment. In that spirit ED had to hit the ground running. This time he was running to woe investments and hoping to extricate the nation from the cruel jaws of poverty. In doing this it became imperative that the image of the country be portrayed in a better way. A greater need to market the country’s business and investment opportunities internationally became a must. It was then mandatory to be Consistent with this new thrust, that the Reserve Bank of Zimbabwe (RBZ) had to declare its commitment to support the opening up of the economy for business through mainly monetary policy measures that ease the cash challenges. the RBZ is fully aware that the cash challenges in Zimbabwe are inextricably linked to the performance of the broader economy and a policy to envelop those ills. Just like wheels on a car any currency will not stand the heat if the economy is in sixes and sevens.
In order for development to sweep through in the tides of the economy, a sustainable currency solution should be based and supported by the economic rebalancing imperative – increasing production and exports. There is a great need to bring in money as opposed to take it out.
With these efforts the investors are now falling on each other rushing to invest and take full advantage of Zimbabwe to the benefit of its people. Investors will always need assurances of protection of property rights and from other attendant risk factors that got us into our current situation. The government through the RBZ has put guarantees in place to safeguard the investors.
Previously the situation in Zimbabwe and uncertainties in property ownership had strongly repelled investors. Out of investment approvals of more than US$1,52 billion and US$2,3 billion in 2016 and 2017, only US$343 million and US$235,4 million were realised as net Foreign Direct Investment respectively. These statistics show that the country continues to perform poorly compared to its regional peers in Africa who attracted a total of US$59 billion in 2016.But it has shown that there is a bright light at the end of the tunnel. To remain in sink with the “open for business narrative”, the RBZ has made efforts to minimise the foreign currency remittance risk in Zimbabwe, which has been the evil factor to investment in the country. The bank announced that it is enhancing the nostro stabilisation facility by US$400 million to provide assurances that international remittances and individual foreign currency inflows received through the formal system will be available when required by owners, to meet foreign exchange requirements for importation of essential requirements as well as to provide assurance that investors will be able to access the proceeds from the capital in their preferred destination through the refinement and enhancement of the Portfolio Investment Fund, which is currently at US$5 million. This is a welcome development which rings the memory bells of travellers cheques.
It is important that the RBZ always acknowledges the role being played by Afreximbank in sustaining the multiple currency regime, noting that dollarisation would be very difficult to sustain in the absence of access to the foreign currency capital markets, mainly the United States dollar. The apex bank revealed that as at December 31 2017, the country had accessed nostro facilities of US$1,1 billion from the Cairo-based bank. It had also drawn an additional US$290 million in bond notes provided under the Export Incentive Scheme of about US$500 million.
However, this notwithstanding, the inordinate exposure to Afreximbank, which is also working as a lender of last resort through its Afreximbank-backed Interbank Market Facility (Aftrads) for US$400 million is worrying. As such, the RBZ is advised to court more financial players to support the country with its nostro requirements.
This may have negative ramifications on the cash situation, demonstrating why temporary solutions to the country’s cash challenges are no longer viable. The monetary police promises an end to cash problems.
There is need for a wholesome and sustainable solution to the country’s cash crunch. The Monetary Policy acknowledged that while dollarisation was useful to stabilise the economy from hyperinflation, it may not be the best to support the growth imperative of today in the face of limited access to foreign currency, mainly US dollar capital markets. There was a strong indication that we are now few miles from having a new currency we are moving towards dollarisation. However, as usual, the Monetary Policy Statement maintains that fundamentals should be in place before this economic imperative is implemented. We cannot rush to doll-arise without a strong support in the form of bankable asserts. Our economy must be able to stand with our currency.
One of the apex bank’s key fundamental requirements is the attainment of three months import cover, which is, of course, a downward revision from their previous cover of one year, ostensibly to reconcile with the Ministry of Finance’s position. Effectively we are moving towards our own currency. The mere existence of cash premiums on US dollar and bond note transactions, which are actually increasing every day, is a clear sign of de-dollarisation.
This is why the monetary authorities should be proactive enough and come up with a sustainable way to de-dollarise for the benefit of this imperative, which is mainly sustainable budget deficit financing of the productive sector enabled by monetisation of this deficit. The fundamentals prescribed by monetary authorities, mainly the three months import cover, are moving targets, which may be difficult to achieve in a short space of time.
The indication by the RBZ that the roadmap for currency reform in Zimbabwe will be predicated on a Currency Board (CB) and/or Gold Standard (GS) is quite sensible in view of the commodity-based nature of the Zimbabwe economy. It is quite easy to base the currency on a commodity or commodities such as gold or tobacco. This way, we can forward sell of these commodities and unlock significant billions of dollars to support the currency and rebuild the economy. The pace of getting Zimbabwe re-admitted into the London Bullion Market Association (LBMA) is discouraging, especially considering that the country has already met the requirement to produce at least 10 tonnes of bullion for three consecutive years. Last year alone gold production was at 24,8 tonnes following the production of 21,1 tonnes in 2016 but we are still selling our gold through Rand Refineries, which denies the country an opportunity to benefit from lucrative structures such as forwards and futures, which normally dominate the trade of the bullion in the international market.
Equally worrying is that the country is not tapping the full potential from its tobacco due to the suboptimal financing and marketing structures. There is a great encouragement in RBZ trying hard to avail facilities to producers of exportables, mainly gold, tobacco and horticultural products.
The approach to utilise excess liquidity in the market to support business with potential to export is commendable. The increase in gold production is mainly attributed to the gold production facility of US$74 million which was mainly provided to artisanal gold miners, which contributed 53 percent of this production. Whilst the support by the RBZ is commendable, it is discouraging that the banks are not being as supportive as they should do. Banks are de-risking and reducing their lending to the private sector they prefer to hold less risky Treasury Bills.
The continued decrease in the loan-to-deposit ratio to 44,81% by December 2017 from 56,64% the previous year is also revealing. This is why the RBZ should support the austerity measures by the Ministry of Finance by minimising deficit financing through Treasury Bills (TBs) and overdraft to the central bank. The increase in government debt is worrying and will make it very difficult to sustain the currency. TBs and bonds topped US$5,2 billion in 2017 from US$3,2 billion the previous year while overdraft on RBZ was in excess of US$600 million. Consequently, the country breached the statutory limit on government debt of 75% of GDP as well as the overdraft limit of 20% of the budget. Effective implementation of the austerity measures is expected to reduce the budget deficit to the targeted 4% of GDP in 2018.For effective economic rebalancing, the RBZ recognises the need for the judicious usage of the scarce foreign currency, considering that the country’s foreign currency generation is comparable to a number of African countries, but foreign currency shortages are worse in Zimbabwe.
Consistent with the need to effectively manage foreign currency resources through the foreign currency priority allocation system, foreign currency payments were reduced by 6% US$4,809 billion in 2017, which is commendable in view of a lower increase in foreign receipts of 1,4% to US$5,563 billion in 2017 from US$5,485 billion in 2016.
There is a-recognition by the RBZ that the generators of foreign currency need to be incentivised to continue producing more. That is why the foreign currency retention schemes were revised favourably. Private exporters other than those of gold, diamonds, tobacco and chrome can retain all their foreign currency for use within 14 days. The encouragement is also to reduce overdependence on imports through promotion of local investment. That is why the efforts of the new authorities to increase investment plausible.
It then can be summarised that MPS has partially introduced a new currency which is called REAL TRANSFER GROSS SYSTEM DOLLAR. This means that RTGS’s balance is still in bond so money will be calculated in RTGS balance.
This then means that technically the bank balance is being controlled by big companies. This is a fact which will automatically devalue money which is in the bank. Effectively you bank US dollar hard cash and take it back bond. MPS acknowledged that the bond notes created shortages of hard currency and the MonetRy Policy was meant heal the ills caused by Bond. The MPS introduced the demise of the Bond. Bonds had decapitated our economy by creating shortages. There has been no clearly spelt out exchange rate. This will cause the sustainability of black market. There is a legal technicality where section 43 mandates the Reserve bank to make dollar at par with bond. This has to be amended before one person takes it to the high court.
We note that foreign currency is not liberalised there is some abnormality in the process. The exchange rate which is not pegged becomes unrealistic. Quasi fiscal Activities have not been altered.
There will still remain doubts over accounts with one to one rate. Or Foreign Direct Investment is not attracting money into Zimbabwe. There have to be accountability rule of law so that investor’s confidence may be rekindled.
Looking at the statement on the round it has been a greAt piece of work.
Despite the public spat between the minister and the governor the monetary Policy Statement has shown some seriousness and the son promises tori rise.
We hope to adopt a situation where we apply what is on paper to reality. We see Zimbabwe coming back again…Byo24