As the Reserve Bank of Zimbabwe releases $2 coins into circulation tomorrow ahead of the introduction of $2 and $5 Zim-dollar notes, Finance and Economic Development Minister Professor Mthuli Ncube is convinced all fundamentals are now in place to ensure a stable local currency.
The finance chief said in two years, the US dollar overhang among individuals and businesses will be over as measures put in place will stabilise the Zimbabwean dollar, thereby making it the currency of choice.
He said that the new coins and notes are not a new currency as misconstrued by some sections of the media and society. Rather, a new currency was introduced in June when Government outlawed the use of multi-currencies.
The $2 coins as well as the $2 and $5 notes will be interchangeably used at par with existing bond notes and coins.
Minister Ncube said austerity, which has run its course, had delivered what it was meant to deliver, that is a balanced budget. The new thrust is now on consolidating the gains and job creation.
He said the issuance of the paper money completes the monetary sector reforms, which saw Government introducing a raft of measures to rein in Zimbabwe’s economic woes.
The Finance Minister stressed that Government is committed to currency stability and is aware that cash unavailability has been instrumental in pushing prices up, hence the need to bring in the new notes and coins, albeit in a non-inflationary way that will see RTGS balances being swapped with the cash.
Prof Ncube was speaking to the media in the capital on Wednesday.
“This is how we are declaring that this era of intense tough reforms and austerity is over. We are now switching over to productivity and job creation,” he said.
Speaking on the twin deficits that have plagued Zimbabwe’s economic reforms for a long time, Prof Ncube said Zimbabwe is on course to reduce its budget deficit to 4 percent of Gross Domestic Product (GDP) by year-end.
“We have been running surpluses. We know that by year-end, we are going to be in deficit. The twin deficits are now under control, you have no reason to worry. The current account and fiscal deficit needs to be contained so that we can support stability. If you have problems with those two areas, that will contribute to currency instability for sure.”
Zimbabwe has met its critical target of dealing with the fiscal and current account deficits, with the first half of the year recording consistent fiscal surpluses and a substantial improvement in the current account balance.
For the first time since 2009, the country’s current account registered a surplus of $196 million in the first quarter of the year.
However, the twin deficits are not the sole panacea for currency stability.
Government has therefore also managed to stop the central bank’s quasi-fiscal operations such as providing direct funding for projects. It has also managed to rein in several of its own expenses.
“Our target has been not to touch the RBZ overdraft window. We have not borrowed a single cent from the RBZ. We are not interested, give the RBZ its independence, we do not use the RBZ as a cash box,” declared Prof Ncube.
Government’s financial discipline has enabled it to embark on major infrastructural projects through locally generated resources.
Since the declaration of the state of disaster on our roads in 2017, Government has been on a blitz to spruce up both urban and rural roads, including the Lupane-Nkayi Highway, the Bulawayo-Victoria Falls Road and the Kamativi-Binga Road, among many others.
Among other social protection programmes that are again funded from the local purse, Government has acquired buses for the mass public transport system and more are on their way. On Friday, President Emmerson Mnangagwa commissioned 79 new Zupco buses to add on to the fledgling fleet.
It is particularly important to note that all these developments are taking place as the country is smarting from the effects of a devastating drought as well as Cyclone Idai, which ravaged some parts of the country earlier this year.
Prof Ncube further said the 2 percent intermediated trnasfer tax, which he said will be maintained as it continues to avail funds for the aforementioned projects, medical drugs and fertilisers. The 2 percent tax has also solved compliance issues with regards to defaulting corporates and those in the informal sector.
For proper functionality, an economy requires cash in circulation to be between 10 and 15 percent of the broad money supply. Currently, the cash in circulation is significantly lower at about 4 percent of the money supply, hence the RBZ’s move to gradually increase the supply.
“The circulation target is about 15 percent but we can’t get there in one year. We have to control the gap in money supply,” said Prof Ncube.
RBZ Governor John Mangudya has said injecting the cash will be done gradually over the next six months.
The new notes and coins are expected to thwart the growth in cash premiums that have been eroding the value of electronic money.
Meanwhile, the Finance Minister has said good times lie ahead.
“On the prices, please be patient. I know that prices are not very stable and the wages are not where we would want them to be. But we have to bear in mind that we have tried to do currency reforms at high speed, we therefore should expect bumps.
“But Government finances are in good hands, that I can assure you. The bumps will ease soon.”
Prof Ncube will present the 2020 National Budget on Thursday. He is expected to prescribe a host of policies that will give oomph to the economy and build the local populace’s confidence in the new currency.