Walk the Talk!

Source: Walk the Talk! | The Herald

Happiness Zengeni and Conrad Mwanawashe

Faced with a high fiscal and current account deficit, debt overhang, lack of competitiveness, liquidity crunch and high cost of capital, Zimbabwe should start doing things differently and “Walk the Talk” to transform the economy, says Reserve Bank of Zimbabwe governor Dr John Mangudya.The economy is hungry for production and productivity and therefore there is need to transform the narrative from consumption to production, Dr Mangudya noted while delivering the 2016 Mid-Term Monetary Policy Statement yesterday.

With the public sector wage and salary bill being one of the highest in the world at more than 90 percent as a share of fiscal revenue and inflation at -1,4 percent being low or in negative territory (deflation) since 2014, real wages and salaries have increased, crowding out capital and social expenditure — thus undermining the economy’s capacity to enhance employment and to be competitive.

“It is against this background that we are calling for a business unusual approach in coming up with appropriate measures to deal with the imbalances that we are facing and we are calling our monetary policy statement; ‘Walk the Talk’ to restore trust and confidence in the economy,” said Dr Mangudya.

“We are calling for fundamental policy shifts in fast-tracking the ease of doing business and reducing the cost of doing business in Zimbabwe so that we can increase production.

“We want to change the narrative of this economy to one that prides itself in producing goods and services so that we can have more money in the country, so that we can increase employment, exports and the level aggregate demand in this economy and reduce dependency and poverty. We need production,” he said.

In light of the fundamental steps required to stimulate economic growth, Dr Mangudya’s said his statement was developmental and production-oriented but for the measures to be successful there was need to implement policy measures that have the effect of increasing the cake.

In that regard, Dr Mangudya announced eight monetary policy measures that are expected to restore confidence and provide impetus to production.

The measures relate to ease of securing offshore loans; incentivising inflows from the diaspora and private unrequited transfers; nostro stabilisation facilities of $215 million; $20 million gold development initiative for small-scale gold producers; $10 million horticulture/floriculture pre- and post-shipment facility; resuscitation of the credit guarantee scheme; establishment of an offshore financial centre and guidance on interest rates charged by micro-finance.

In order to enhance the ease of securing offshore lines of credit, the threshold of external loans that do not need prior Exchange Control approval is, with immediate effect, increased to $20 million from $10 million. Authorised dealers will still be required to register all such loans, in the usual manner, with the central bank.

With regards to incentivising inflows from the diaspora and private unrequited transfers, the central bank extended the export incentive scheme at a level of between 2,5-5 percent. The facility was also extended to any form of private unrequited transfers on funds remitted to Zimbabwe through normal banking channels with effect from October 1.

Dr Mangudya said the RBZ has managed to secure facilities in an amount of $215 million from international finance institutions to deal with the outgoing foreign payments in order to deal with the current delays in the processing of outgoing foreign payments by banks.

In addition, negotiations are at an advanced stage to raise $330 million from regional sources to enhance production and improve the liquidity situation in the country.

Furthermore, the apex bank has secured a $20 million for Fidelity Printers and Refiners to support small-scale and artisanal mining operations in order to increase gold production in the country.

“With underground gold reserves estimated to be around 13 million tonnes, Zimbabwe’s rich gold reserves are clearly under-exploited. Only 586 tonnes have been officially mined over the past 36 years to August 2016.

There is, therefore, great scope to vigorously promote the mining of gold across the country in 0der to liquefy the economy,” said Dr Mangudya.

This measure is supported by other policies that include the reduction in custom milling fees from the current $8 000 on the basis that when the fee was $2 000 there were 485 millers which were registered but now at $8 000 the registered millers are now around 51.
What is worrying for the RBZ chief is that there are many millers who cannot afford to pay the required fee of $8 000 but are still operating and selling their gold on the black market and/or smuggling gold out of the country.
The policy is also aided by the reduction of licence fee for explosives on the basis that at $100 about 5 000 small-scale gold producers were registered and when the fee was increased to 2 000 only 300 registered.
The central bank has also arranged a facility of $10 million for the pre and post-shipping requirements for producers of horticulture and floriculture in order to increase production and exports of this sub-sector. Horticulture and floriculture has previously been a fast growing export source with Zimbabwe having been one of the top exporting country in Africa in the 1990s.
To address the challenge of lack of adequate and acceptable collateral, which is among the major challenges faced by marginalised groups including SMEs, women, youth, small holder farmers and rural population in accessing bank credit, the reserve bank is resuscitating the Credit Guarantee Scheme under the Export Credit Guarantee Company (ECGC) with effect from next month.
The guarantee scheme, which used to be operational, was discontinued in 2002 as the guarantee limit had become too insignificant to support any meaningful business due to economic circumstances prevailing at the time.
It is envisaged that the resuscitation of the credit guarantee scheme will go a long way in stimulating productive lending to the marginalised groups which will stimulate economic growth and poverty reduction.
Other measures include reduction of interest rates charged by micro-finance institutions to 10 percent from 20 percent, establishment of an offshore financial centre as a confidence building measure under the auspices of the Special Economic Zones.