Zimbabwe News and Internet Radio

U-turn on bond notes gets thumbs up

By Letwin Nyambayo

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.

Professor Mthuli Ncube
Professor Mthuli Ncube

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. Daily News