eBusiness Weekly
RBZ governor Dr John Mangudya made some very interesting and yet bewildering statements when he appeared before the Budget and Finance Parliamentary Committee on Wednesday this week.
As part of his submissions on why the local currency and inflation have continued to skyrocket, despite measures put by both treasury and monetary authorities, Dr Mangudya professed ignorance on the exact causes of the country’s price and currency instability.
Instead he tried to mystify the whole issue blaming unknown “demons” which he likened to the coronavirus pandemic.
There is a demon in our economy, which needs to be traced. It’s more like an economic virus, which you can’t touch but you can feel it.
“We are all wearing masks, we are all afraid of it, no one knows what it is, so is our economy,” he said.
The statements must rank as the most colourful language from a central bank Governor. But such colourful language must then be backed by monetary and economic theories on why we are where we are and what will be done do get us out of our predicament.
Instead, Dr Mangudya chose to use metaphors saying the central bank will apply “chemotherapy” on the “cancerous activities” eroding livelihoods of Zimbabweans.
Dr Mangudya’s failure to articulate the reasons why the country is in this mess and what will be done to correct the situation, whether deliberate or oblivious, is one of the reasons why the economy and the financial sector is in this sorry state.
Earlier in his submissions, Dr Mandudya said Zimbabwe is a country driven by perceptions, speculations, suspicions and individualistic tendencies as opposed to fundamentals and national interests.
Very few would argue with him on that one.
It’s actually a surprise that Dr Mangudya then went on to apportion blame on unknown demons and shadow economic activities, when issues of perceptions, speculations, suspicions are a result of the central bank and treasury’s actions in the past, in particular the period stretching from May 2016 to now.
The introduction of the bond notes, which have been at the centre of the country’s currency pain was fraught with lies and opaqueness.
“It is also important to note that bond notes shall not be forced on people who do not like them,” is a promise that was made in a Mid Term Monetary Policy Statement presented in September 2016. It was never kept and fuelled issues of lack of trust that were already there and had led to demonstrations against bond notes.
Another condition that came with the introduction of bond notes was that the bond notes were backed by an offshore US$200 million counter cyclical facility arranged to support the export bonus scheme from externalisation and/or capital flight. But when the bond notes lost value against the US dollar which it was pegged to, that value was not restored by that US$200 million facility and the subsequent ones. The market is still looking for closure on that.
Dr Mangudya can thus not profess ignorance on why Zimbabweans are always speculating, and being suspicious with the central bank’s actions.
One can also trace foreign currency challenges to the retention thresholds that were introduced on the 4th of May 2016. On that day Dr Mangudya said the central bank would convert 40 percent of new US dollar foreign exchange receipts and 10 percent to Euros.
“This is aimed at ensuring wide spread of currencies and minimise against concentration risk of using the US dollar,” Dr Mangudya said.
However, the retention threshold as well as the RBZ’s control of the exchange rate continue to be shunned upon till now and are the main reasons why foreign currency is being channelled and sold away from official markets. How Dr Mangudya claim not to see this, but instead blame demons defies logic.
Lack of timeous and consistent statistics on the state of the financial sector is also another reason behind perceptions, speculations, and suspicions. At the time of writing, the central bank was still to publish monthly economic reviews for 2020. This means economic players are in the dark and will have to use past experiences which unfortunately are not pleasant and fuel damaging speculation and suspicion as we are seeing with the tumbling exchange rate.
A good example is last year, when the central bank having last published the monthly economic review report for September 2019 showing Broad Money-M3 at $23,5 billion released new figures this year showing that M3 had jumped 48 percent to $34,9 billion by December 31, 2019. Despite promises by the newly established Monetary Policy Committee that monetary targeting was top of the agenda, it was thus shocking to see that money supply had grown 249 percent year on year.
It seems no lessons have been learnt and the market can only suspect and speculate what’s happening on the monetary front. At the time of writing, the central bank was still to publish monthly economic reviews for 2020.
Armed with the right information or having easy access to the right information, public reactions are likely to be less dramatic, but the central bank is not concerned.
It is also unhelpful for the central bank to blame demons on currency challenges when the country does not have a functioning exchange rate policy and trading system. The interbank FX market should be allowed to play its role of price discovery for private investors to price the exchange rate risks, but this has not been in place for long.
The RBZ also came under heavy criticism from the IMF through its 2019 Article IV consultation country report.
The global lender said the RBZ Act has an overly complex and non-transparent monetary system. It added that the central bank also conducts quasi-fiscal operations that fall outside of typical central bank activities including financial support to gold miners.
“The RBZ’s broad discretion in applying the foreign exchange regulations reveals further governance vulnerabilities. The allocation criteria are opaque and open to mismanagement.
“The RBZ framework for financial sector oversight creates governance vulnerabilities. A weak legal framework does not allow the supervisory authority to adequately perform its responsibilities,” reads part of the IMF’s report.
While Dr Mangudya is right to say Zimbabwe is a country driven by perceptions, speculations, suspicions and individualistic tendencies as opposed to fundamentals and national interests, he should accept responsibility that his office and government’s activities have not made it easy for citizens to live by the book and act on fundamentals and not speculation.
Transparency, clarity, consistency and doing things by the book will put to rest the public’s fear and mistrust and help build confidence.
Unfortunately, judging by Dr Mangudya’s submission before the Budget and Finance Parliamentary Committee, these are not areas his office is looking to correct.
