U-turn on bond notes gets thumbs up

Source: U-turn on bond notes gets thumbs up – DailyNews Live

Letwin Nyambayo     20 September 2018

HARARE – Economists have welcomed both President Emmerson Mnangagwa and
new Finance minister Mthuli Ncube’s move to rule out the immediate return
of the decommissioned Zimbabwe dollar.

This comes after government said the country will for now continue to use
bond notes and the multiple currency system until the local economy
stabilises.

There has been growing anxiety among both business and ordinary
Zimbabweans, following the dramatic spike in foreign currency rates on the
parallel market over the past few weeks.

The forex black market rates ran amok last week following the suggestion
by Ncube that the government would be phasing out bond notes before the
end of the year – a position that authorities have since moved to dampen.

Speaking in Parliament on Tuesday during his inaugural State-of-the-Nation
Address (Sona), Mnangagwa said bond notes and the multiple currency regime
would remain in place, at least until the economy had stabilised.

Similarly, Ncube also said that the bond notes and the multiple currency
system – in which the much-coveted United States dollar is effectively the
country’s anchor currency – would continue to power all monetary
transactions until the government had finalised its planned currency
reforms.

President of The Confederation of Zimbabwe Retailers (CZR) Denford Mutashu
said the clarity provided on the currency issue by President Emmerson
Mnangagwa during his Sona was key for market confidence and stability.

During his Sona address, Mnangagwa said the United States dollar will
remain the foundation of government plans to address the economic
challenges such as cash and foreign currency shortages.

He said measures are going to be taken to enhance foreign currency
availability, improve liquidity, enhance Zimbabwe’s investment
attractiveness, instituting currency reforms and reducing national budget
deficit.

However, Confederation of Zimbabwe Industries (CZI) President Sifelani
Jabangwe said the economic problem the country is facing is not a result
of the bond note.

“When the minister echoed his sentiments, they were not official because
he said it before he was appointed the minister.

“The problem we are facing is not about the bond note but it is about the
fiscal deficit, how the government is using its money and the fact that we
are not generating any currency,” he said.

He said the surge in the foreign currency rates was a result of tobacco
sales coming to an end.

“What is required is a continuous injection of money up to December to do
what the tobacco money was doing.

“We need something to counter the tobacco closing season. Increasing the
amount of cotton because the export and sales are carried in June and
December could be helpful,” Jabangwe said.

He said Ncube’s statement that the bond notes will be phased out in
December might have contributed to the upsurge of foreign currency rates
but not that much, saying a congruent increase occurred last year after
the tobacco season closed.

Zimbabwe introduced the bond notes towards the end of 2016 as part of its
desperate bid to address the country’s severe cash and liquid crisis – all
this under a special arrangement with Afrexim Bank.

However, the country has remained in the grip of a ginormous economic
crisis characterised by endless cash queues and the acute foreign currency
shortages.

Despite Zimbabwe having a decent tobacco season, as well as having
significantly improved its gold sales, the Reserve Bank of Zimbabwe (RBZ)
has not been able to allocate adequate foreign currency to key sectors of
the economy.

Ncube also said on Tuesday that the government was not only working on
broader economic reforms aimed at addressing the currency problems, but
also the government’s excessive spending which has been fingered as being
behind many of the country’s macro-economic problems.

“The fiscal side is also an albatross on the monetary side.

“So, if we are going to have monetary sector reforms, we also need reforms
on the fiscal side and these include reducing the budget deficit to a
single digit as quickly as we can and adopting a budgeting approach that
always takes a medium-term approach.

“So, it’s a package that we are working on rather than something as narrow
as the currency that is being used on the street … that’s the foundation
for a strong currency going forward,” Ncube said.

Mnangagwa and his Cabinet are under pressure to stop the economy from
sliding back into the throes of an economic crisis similar to the 2008
hyperinflation era.

Over the past few weeks, the prices of basic commodities shot up sharply,
while some goods have disappeared completely from supermarket shelves due
to the country’s acute foreign currency shortages.

This has come at the same time that industry has warned that the deepening
foreign currency crisis is making it difficult for manufacturers to import
critical raw materials on time.

Industry, as a result, has also warned of further price hikes and
shortages of basic consumer goods.

Already the country is experiencing shortages of basic goods, hospital
drugs and construction materials such as cement.