Why ‘Don’t Panic – Is Rotten Advice’ from the Reserve Bank of Zimbabwe

At the peak of Covid 19, Peggy Noonan, a weekly columnist for The Wall Street Journal, coined the statement: “A grave crisis calls for reason and realism not an abundance of caution!”….

This statement appears very apt given the statements coming from Reserve Bank of Zimbabwe (RBZ) Governor Dr John Mangudya while attempting to reassure Zimbabweans and stop them from panicking.

But quite frankly reassurance is what the pilot gives you when you board a plane, the moment adversity strikes the pilot gives you ideas on how best you can survive…

Simply saying Don’t Panic when the plane is clearly in freefall mode is as Peggy Noonan says is ROTTEN ADVICE.

Instead the Central Bank should acknowledge the situation and move away from misguided advice because as the Shona say: Rine Manyanga Hariputirwi. The market responds to market forces you can’t wish or command them away.

Another poor policy show from the Central Bank has been through the activities of the Financial Intelligence Unit which are an arm of the bank. The Unit has taken to threatenining businesses for undertaking normal day to day activities.

If I am selling a product I have the sellers right in determining the price in response to my business operations. If my operations require that I purchase stocks or raw materials in foreign currency then I must ensure that my operations support this.

Under normal circumstances the business can transact in local currency and manage the exchange through their local bank.

The Financial Intelligence Unit who have failed to put in place systems to monitor anti money laundering and insulate the economy from those identified on any sanctions list. They appear to not be clear on what their role is.

Furthermore the Central Bank seems ignorant of the lack of credibility i.e. the mistrust that already exists within our economy. Such interferences/infringements on the rights (property) of businesses worsens the trust deficit and erodes policy confidence both of which are required to stabilise the economy.

Monetary policy from the central bank which included the launching of the pegged interchange auction. This offered concessionary rate to elite high-end businesses (typically friends of politicians) and this practice continued for so long until the bank now no longer has the forex available to continue.

As a result of this discounted interchange auction the RBZ are now suggesting that businesses should go to their local banks to purchase foreign currency. Local banks will now access foreign currency from the central bank and then sell to their customers. However the central bank no longer has foreign currency available.

Late last week RBZ could only offer USD$5 Million for exchange through the auction. Banks are encouraged to encourage their clients to use international debit cards to make international payments.

This is because Zimbabwe debit cards in themselves cannot be used in international clearing system because of first the highly devalued local currency and secondly the impact of poor KYC linked to sanctions.

At 800% inflation the situation at hand is grave and yet there isn’t a clear solution presented by the RBZ. Given the impending General Elections in August of 2023 what Zimbabwe needs now is a tactical solution that over the next 3 months will reduce the damage and stop hyperinflation which will claim with it many victims through deeper poverty and stunted productivity. Already we are hearing of factories making their staff redundant and closing some of their lines the situation is dire and certainly feels like the Ghost of 2007/8 is back.

It is clear that the country no longer has access to USD which have been chowed by the terrible triplets of, interchange auction, fiscal indiscipline and corruption leakages.

In 2021 after the launch of the interchange auction I remember looking at the then Budget statement and working out that on average the top 12 companies getting foreign. currency through the auction gained a discount of 50% to the real market value. Meaning that the country subsidised these company by selling them USD at a concessionary price

50% less than the market value. When it comes to fiscal indiscipline we are never short of current examples just in the last couple of months alone we have seen US$500,000 given to each minister, US$400,000 to each judge and CIO directors t of US$350,000.

In as much as market value based remuneration must be paid we cannot afford sporadic payments that are tied to politicking and outside of market values for Zimbabwe at such a time as this.

These payments are an example of how fiscal indiscipline has cost the Zimbabwean taxpayer and contributed to ensuing no access to forex status.

The issue of corruption leakages in Zimbabwe is no longer up for debate. In the last 6 months investigative journalism by The Sentry and Al Jazeera has proven beyond doubt the existence of corrupt practices.

Some records have shown that Zimbabwe loses a minimum of US$12 billion a year from corruption. A simple exercise of comparing over a time period the RBZ recorded gold production versus the royalties collected by ZIMRA has shown nearly 150% discrepancy.

That is we received royalties of less than 150% what they should have been in that time period. And yet the FIU or ZIMRA have not spearheaded any investigations as to why this is the case.

With all this in mind Zimbabwe requires a tactical solution to urgently curb or mitigate the spiralling inflation upon us.

My recommendation is that given we have limited to no access to financial resources we need drastic policy moves that restore credibility. The economic stability task force should be led by a team of economists and including leaders from business, consumers and banking sector.

This is the time for unison not commandeering working together is crucial. Through working together it would be possible to introduce the dollar as a single currency in Zimbabwe. An immediate benefit of this is economic credibility from transparent and predictable systems.

The economic task force caretaker should also oversee the brief suspension of the Central Bank so that the country is no longer subjected to activities such as money printing and other clandestine acts we have seen from the central bank.

The task force will oversee the dollarisation process and couple that with methods to ease transactional cost to reduce cash demand. Dollarisation will be backed by the country’s gold reserves at a point in time and regulations put in place to stop any further printing or other activities that disturb the set equilibrium between reserves and money supply. This solution should be timeboxed to 3 months and must be the first priority of the new government on 1 September 2023.

Chenayi Mutambasere (Msc Development Economics and Policy) is a member of the Citizens Coalition for Change (CCC) in the UK and Ireland Province