eBusiness Weekly
Business Writers
ZIMBABWE’S macro-economic instability which characterised the first half of 2022 stemmed solely from bloated money supply growth as the Reserve Bank of Zimbabwe created money from thin air, a leading economist has said.
Presenting his 2023 economic outlook at a Zimpapers Strategy Workshop in Harare, Cross said the economy’s main problem in 2022 was the monetary policy as the Reserve Bank of Zimbabwe created money to fund its activities of buying gold and foreign exchange.
According to the RBZ’s Monthly Economic review for the period ended September 30, 2022, broad money registered a 425,83 percent increase over the year. The local currency component of broad money also grew by 216,16 percent over the same period, largely due to credit creation by banks.
“The annual growth in broad money was largely driven by increases of $787,68 billion (491,72 percent) and $227,30 billion (531,25 percent) in credit to the private sector and net claims on Government, respectively,” reads the review.
The problem of a bloated money supply was also identified by the IMF following its six-day review of the country’s economic status.
“They do not understand why we do not fix it because it is easy to fix and it can be fixed in 24 hours,” Cross said.
“The RBZ, this year, would have bought close to 30 tonnes of gold. When they buy a tonne of gold 40 percent is in local currency, and they print the money to buy.
“They are creating about a billion dollars a week printing, its air. It is exactly what when Mthuli was appointed Minister of Finance in 2018 he said to us as a nation US$23 000 000 000 you have got in your accounts is not USD its air, created by the Reserve Bank, we called it USD but it was not USD.
“When he is printing money to buy gold he is creating value out of nothing, when you do that, especially in a small economy like this you devalue the currency, inflation, and then buy the foreign exchange,” said Cross.
Coupled with a total lack of confidence and ample space for arbitrage, printing money resulted in massive devaluation and inflation.
Ultimately, the massive devaluation and inflation led to an effective dollarisation of the economy with the associated loss of competitiveness, Cross said.
He said going into an election year, the 2023 economic outlook will depend on policy though no major political changes are expected.
Cross tipped the mining, housing, and services sectors “to continue to grow strongly” while industry and the agriculture sector are expected to struggle.
He expects “a very poor agricultural season due to low plantings and production difficulties”.
Just like this year, the major pain point in 2023 will come from the monetary sector where Cross does not expect changes.
He expected “continued devaluation of the local currency and high inflation”.
“The US dollar will remain the primary means of exchange in markets,” Cross said.
He said if authorities were to implement full liberalisation of the exchange rate, inflation would collapse as market-based exchange rates are much stronger.
Lifting exchange controls will see the local industry recover and resume growth while exports will strengthen even further.
Cross described the present position as unsustainable, threatening the resumption of both devaluation and inflation.
He said the country should take advantage of the macroeconomic environment which is “now sound” with the budget “under control”.
“Our exports exceed our import needs and are starting to reach the point where we can service external obligations.”
According to Cross, the only solution to the challenges bedeviling the country is to “recognise that we must have our own currency and be able to manage its value”.
“We need to dismantle the whole system of controls over imports and even exports. We need to establish a proper market for foreign exchange inflows that sets a real market price and clears demand.
“We need to maintain a relatively undervalued currency.”
He however does not see this happening. Instead, the most likely scenario is inflation closing 2023 above 200 percent while interest rates will be maintained at the present level.
GDP Growth will be maintained at the present level of about 6 percent in real terms.
Major policy changes can however still be expected in areas of title deeds for the housing market, new 99-year leases as well as major infrastructure developments across sectors.
