Zimbabweans are bearing the brunt of soaring prices of basic commodities and cash shortages. They are also worried about the continued loss of value of the Zimbabwe dollar. To date, Government’s austerity measures have been painful to most ordinary citizens. Our Chief Reporter, Kuda Bwititi, recently sat down with Finance and Economic Development Minister, Professor Mthuli Ncube, to discuss a wide range of issues.
Question: As the country continues to lobby for the removal of sanctions, can you briefly explain how sanctions have affected the economy?
Answer: The impact has been severe and anyone who thinks that sanctions are not harming the economy is surely not telling the truth. We have had many companies directly affected and the examples are too many to mention, like Olivine which had a loan intercepted through the United States’ Office of Foreign Assets Control (OFAC). In the financial sector, banks such as Standard Chartered Bank and CBZ have lost money directly as a result of sanctions. We can go on-and-on.
But, as a Finance Minister, I want to see sanctions go. What is really important is that I am driving the economic reform agenda and we are getting the economic fundamentals right so that we can present a case for the lifting of sanctions.
We have achieved a budget surplus. Other reforms include doing away with laws such as AIPPA (Access to Information and Protection of Privacy Act) and POSA (Public Order Security Act). We are also working on the Police Act, the Citizens Bill, all of which are part of the progress on reforms.
I do not know any country in the world that has achieved the reforms that we have accomplished in just 12 months. And we have done this without any international monetary support. We have also done these reforms despite the shocks of a severe drought and a devastating cyclone.
Our reforms are real and paying off. One example is that the World Bank upped our rankings on the Ease of Doing Business.
Q: What does this ranking mean to the ordinary Zimbabwean?
A: What happens is that when you move up the rankings, global investors start to see you differently. It improves your global ranking and it reduces the risk premium that is associated with the country.
The benefits are enormous going forward. For the ordinary person, it is about new jobs and business opportunities that will be created.
I will be bringing forward a paper to Cabinet to see other areas we can continue to improve and focus on in the next two to three years so that Zimbabwe continues moving up the ladder.
Q: You have said this year Government will end austerity. Please unpack what this means.
A: Austerity came with the realisation that we were running a huge budget deficit. The monies were being spent in an unstructured way. We have reined in on that by reducing Government expenditure and cleaning up the systems to ensure that these are audited properly.
We have also improved on revenue collection with Zimra ( Zimbabwe Revenue Authority). So, because of austerity, we have had very successful fiscal consolidation. That is why in the first seven months of the year, we ran a budget surplus. We want to take that surplus as a platform for productivity and growth.
So away from austerity, productivity is the theme in the new Budget that we are going to be announcing in 2020. So it is about growth and productivity and improving the environment for ease of doing business.
Q: What are the specific areas that you are talking about in terms of production?
A: We are now saying we have adopted a successful model for agriculture, working with the banking sector, because we know that the banking sector will do a thorough job in assessing who is productive in farming. So we know that we have got an in-built control and collection mechanism for paying back. We know that we are going to give the money to someone with a track record of production.
Q: On industry, what is the plan?
A: I will have a Budget on supporting productivity within industry as a whole. Secondly, also supporting productivity in the rural areas where there is a possibility for investing in the rural areas, we will give an incentive for that.
But also, I want to focus on job creation. In the Budget, I will have a proposal to reward the creation of new jobs.
Q: The local currency has been losing value even after the introduction of the interbank foreign exchange market. What is your comment on this continued decline in value of the local unit and its attendant harmful impact on the economy?
A: It is imperative that we maintain a competitive currency. Where it stands now, the currency is competitive within the region. It is at 1:1 with the (South African) rand and not far from the (Botswana) pula and the (Zambian) kwacha. We did not have this before. We want to protect the currency and make sure that we have a stable currency. By the way, our currency has helped to improve competitiveness of our exports because when we were 1:1 with the US dollar, we were not competitive.
Q: Some critics say you have failed to deal with cash shortages. What is your plan to address this?
A: We are going to be issuing more notes. We are also going to improve the quality of the interbank market and deal with the cash situation and build confidence in the banking sector.
It is a holistic approach and we should make sure that we do not allow liquidity growth to run away or to increase unnecessarily. We should also make sure that the budget deficit stays within the well-contained levels so that it does not become a risk to the value of the currency. So it is a package that we are going to throw and we are doing that.
Q: You have spoken about issuing more notes. Can you expand on this? Are we going to have new dominations apart from the $2 and $5 notes that are already circulating?
A: There is no new currency or fresh currency that will be coming. All we are talking about are additional notes on the back of a new currency that we launched in June, when we made the Zimbabwe dollar the sole legal tender. Prior to that, we had done 80 percent of it, when we said we had the RTGS dollar.
It has been a journey and now we are talking about the last mile, which is to issue cash onto the market.
But I want to emphasise that there will be no other new currency, it is just about the cash and more coins.
Q: How can this be done in a non-inflationary way?
A: We are going to do it in a smart way. We want to do it in a non-inflationary way. Our first order of business is to swap the RTGS balances for cash. This is so that we do not increase the amount of money supply in circulation, but increase the amount of cash in circulation and reduce the amount of RTGS in circulation.
Q: When are the new notes likely to be introduced?
A: I cannot give the date, except to say that it will be in the fullness of time, and we are assessing the extent of the cash crunch that lingers out there. Once we have done that assessment, to say that we can do so much cash, we will do it and swap the cash for RTGS.
It is coming and we ask for everyone to be patient. We want to do it carefully and responsibly.
Q: What is the amount of cash that you want to put in circulation?
A: Again I cannot say specifically because it is a moving target. The RTGS balances are expanding, so we have to watch that as well and see where we are in terms of the RTGS balances, vis-a-vis the cash that is required in circulation. You also have to measure it with the exchange rate as well. We are also trying to measure what impact it will have on inflation to then decide on the quantum that will have the least impact on those key variables.
Q: There are reports that new notes are already being printed. How far true is that?
A: I cannot deny or confirm that, but all I can say is that what we are doing now is the process of assessing the extent of the cash crunch that we need to deal with. Whatever we do, we will make sure that whatever we print will cover that demand and we will continue to drip feed. The buzzword is that we are going to do things responsibly. We want to do things in a manner that preserves value and in a manner that won’t contribute to inflation or excessive money growth.
Q: What is your strategy dealing with the continued rise in inflation?
A: The truth is that Government alone cannot be blamed for high inflation. There is a lot of profiteering by retailers in that they have been pricing goods according to the exchange rate, or at times, well above the exchange rate. I am aware of some retailers using an exchange rate of 1:30 or even 1:40 because they will be hedging against price hikes. It is all unnecessary panic because the exchange rate is stable now and the prices should be within a reasonable limit. One of the reasons of the price hikes is the shortage of cash. Retailers have said they can reduce prices if they receive cash. So that is why we are going to supply more cash.
We also realise that there is need to stabilise the exchange rate and we are trying to do that. That is why in the past few weeks, it has been reasonably stable and it will go a long away in de-linking the exchange rate and price increases. As long as we can stabilise the exchange rate, we can stabilise prices.
Q: But who exactly is behind the parallel market? There are concerns that you are not dealing with it decisively?
A: We have been hard on the parallel market and you will recall that a few weeks ago, the central bank, through the Financial Intelligence Unit, froze certain accounts that were deemed to be moving the parallel market rates. That is just one example that shows you that we have not allowed the parallel market to go scot-free.
On the streets, police have also been active in trying to fine those caught trading on the parallel market. Also we have directives and statutory instruments . . . All this is designed to control activities on the parallel market.
I do not think that you can eliminate the parallel market entirely, every country will always have some parallel market, but the idea is to narrow that spread and as a Government, we have been trying to contain that market.
Q: Some civil servants argue that they are incapacitated and are not amused that Government is not giving them the increment they are asking for. What do you say to that?
A: What Zimbabwe is experiencing is not really inflation in the traditional sense, it is a recalibration of prices using a new exchange rate.
Recently, the IMF issued a statement saying the minister is arguing for higher wages that will not be good for the economy. I then said I was arguing for responsible wage increases, which are within sustainable limits that we can cover within the budget. So the civil servants are wrong to think that I am anti-wage increases.
In fact, I am their champion. But the issue is what Government can afford now. What we have offered is what we can afford now.
I have even said we are going to pay the bonus; they should not worry about bonus. I have even spoken to the private sector to say they should increase wages, and I actually believe in wage increases. But we have limits in terms of budget deficits, what we can afford, but we are trying as much as possible; that is why we have reviewed salaries several times since the start of the year.
We are also open to negotiations, that is why we have been negotiating even with the doctors, but there should certainly be limits on what we can pay.
We also have other non-monetary benefits. For example for doctors, they can buy cars duty-free and junior doctors can also benefit from affordable housing schemes.
Q: What is your take on the civil servants’ request to be paid according to the interbank rate?
A: We cannot afford that as Government; that is why we are constantly reviewing our offers. We are sympathetic to their plight.
Q: When is the bonus for civil servants coming?
A: It is definitely coming. We have budgeted for it and we are going to announce the dates soon, most probably by next week. It is going to be paid end of November.
Q: When can we expect the 2020 National Budget to be announced?
A: We are looking at the third week of November so that the Budget can probably be passed before Christmas.
Q: There are some who are of the view that since you came in, you have piled more misery on ordinary people. What is your comment?
A: Any reform agenda is painful. We want to keep explaining to the citizens that we have ended austerity and focus is now on growth. So we are sure that we are going to improve the lives of our citizens.
What has caused the suffering is the currency revaluation, which has translated to higher pricing in the shops and the inability of the wages to catch up. We are going to get out of this because the exchange rate will continue to stabilise.
The view that we should have kept 1:1 does not really hold water, because a country cannot rely on other currencies. We need our own currency that we can control, but the process of introducing it is bound to be tough.
I believe that it was a mistake to bring in the US dollar, because it has now cost us. We are correcting the past and the past cannot be solved by the US dollar.
But I also want to mention that I do not take the people of Zimbabwe for granted. I would like to thank them for their patience and assure them that things will turn out right.
My biggest challenge as Finance Minister has been the high prices and inflation, but I am optimistic about 2020. If we stabilise the currency, there will be stabilisation of prices, 2020 is a year of recovery.