Source: ‘Restore US dollar value’ | The Herald November 17, 2017
Prosper Ndlovu Bulawayo Bureau
GOVERNMENT should craft a policy that will influence market behaviour towards restoring the value of monetary assets in the economy to avert another debasing of the currency, economist and consultant, Mr Dumisani Sibanda, said.
The use of the United States dollar under the multiple-currency system, adopted since 2009, is fast losing value in Zimbabwe given the recent price hikes and basic commodity supply constraints on the back of foreign currency shortages. The jump in inflation to 2,24 percent in October from 0,78 percent in September, has upset the market and eroded consumer spending while threatening the value of money.
Mr Sibanda fears the trend, if not addressed, would cripple foreign exchange inflows into the economy, particularly diaspora remittances. Such a scenario could trigger a crisis in the productive sector and cripple basic supplies especially given that the major source of foreign currency at the moment — mining, is headed for a slowdown on the wake of the rainy season, he adds. Although Government has relaxed import regulations to allow those with free funds to import basic commodities, Mr Sibanda says beefing up stocks alone would not stem the tide of price increases.
“This economy cannot afford another debasing of the currency through loss of value as it happened in 2009. What Government needs is a policy that is going to influence market behaviour towards restoring the value of monetary assets in the economy. The greatest concern of Government should not be availability of stock.
That is a populist approach, its concern should be to retain the value of monetary assets as a prime concern. This can be done through policy interventions,” he said. He said the widening foreign exchange supply gap and recent price increases would result in loss of confidence in the economy, which dents investment and foreign currency inflows. Diaspora remittances, for instance, have been on a downward trend this year.
In its mid-term monetary policy statement, the Reserve Bank of Zimbabwe (RBZ) reported that international remittances had dropped by average 8,4 percent to $714 million from $779 million as at June this year. Apex bank Governor, Dr John Mangudya, admitted the lower supply of foreign dollars was attributable mainly to limited access to foreign finance, declining foreign investor confidence, which has reduced capital flows and the indiscipline-induced leakages of foreign currency through illicit transactions and other nefarious activities that include rent seeking behaviour.
“The root cause of excess demand for foreign currency, on the other hand, is emanating mainly from increases in money supply as a result of greater spending by Government, money creation — loans and overdrafts — by banks. It is these external and domestic imperatives or fundamentals that need to be addressed to bring equilibrium and resolve the challenges besetting the economy,” said Dr Mangudya. In this regard Mr Sibanda says relaxing import regulations for a few players without focusing on loss of monetary value and restoring it was not sustainable.
“If free funds are going to find relevance in Zimbabwe it cannot be by converting them into stock. The only way to restore value of money is to increase competition and the only way to do this is to allow households to purchase to the level of family requirements as they did in 2009 to say when you get goods for family consumption there is no hindrance. If you do that you take pressure from the formal market,” said Mr Sibanda.
“It is OK that the retail sector works at a depressed level as long as they are making money. They are not making money by increasing prices but money can be made if you sale at same price and the value of money is restored. What costs a dollar elsewhere in the region — Botswana, SA or Mozambique, we should buy it for a dollar here. That’s what Government should be doing to say let’s restore the value of foreign currency.”
Confederation of Zimbabwe Industries (CZI) president Sifelane Jabangwe has also expressed reservations of Government’s import regulation stance on fears of escalating inflation. Mr Sibanda concurred and stressed the need to address cost drivers instead. He said as long as prices remain high, people with access to remittance finance would want to hold back because of the premium involved when exchanging the hard currency in the black market.