Minister Mthuli Ncube (on Monday) announced measures that are meant to curb hyperinflation and stabilize (prices) as well as address the remuneration crisis in the civil service. The Reserve Bank also issued its Monetary Policy Statement.
We take the view that the policies are a re-statement of existing, failed policies which have failed to build confidence. As will be set out in detail below, our economic problems can only be solved if macro-economic fundamentals are addressed and confidence is restored.
Summary of measures announced
The measures announced include the following:
- The multi-currency system is here to stay. The system will however be “entrenched in law for the foreseeable future.”
- The existing interbank market system of ‘willing buyer willing seller’ will be “legalized”. The pricing of goods will be in both USD and local currency at the interbank rate.
- With respect to commodities, measures have been introduced to “guarantee” the supply of maize and wheat.
- A framework for civil servants’ remuneration has been put in place which includes the previously announced 100% salary increase and benefits.
- The RBZ has announced a 200% minimum lending rate.
- Introduction of gold coins.
On the whole, the Ministerial Statement brings nothing new to the table. The main policy interventions announced by Minister Ncube are a reiteration of policies that already exist and have failed to curb hyperinflation and stabilize prices. Unfortunately, the measures announced have no capacity to transform the ailing fortunes of the Zimbabwean economy. The purported “entrenchment” of the multi-currency system and interbank market in law is not new. The legal framework for these old systems already exists. It will require more (including the building of confidence and addressing the macro-economic fundamentals) than changing the wording of legislation to address hyperinflation and stabilize prices.
In his statement, Minister Ncube rightly conceded that the economy suffers from a lack of confidence. Confidence and trust are fragile. Once lost, these are difficult to restore. Unfortunately, previous experiences have made the market paranoid and very little has been done to regain this trust. In this regard, we have consistently stated that the social contract between the state and citizens in Zimbabwe has broken down. There is a lack of confidence or trust in the economy, the State, government and public institutions.
Minister Ncube’s answer to the crisis of confidence is to introduce new laws to “entrench” the multi-currency system and interbank market. Unfortunately, this is not enough to calm the market. The current problem has not been the legal framework (which already legalises the use of USD as legal tender) but the absence of confidence and trust in the economic system, policies and local currency.
In any event, the regime in Harare has demonstrated a propensity to make and unmake laws arbitrarily. Therefore, under Mr Mnangagwa’s regime, once a law is made, there is no guarantee that the said laws will not be changed when the regime has a fresh change of heart. This has been the experience with the continuous flip-flopping on laws that govern the use of foreign currency which have been changed almost once every two years since 2016.
Failure to curb inflation
The lack of confidence finds expression in the thriving parallel market, acute hyperinflation which officially stands at 192% year on year, although economic experts have said it is much higher, in the region of 377%. Regrettably, none of the measures announced by Minister Ncube address the scourge of hyperinflation or stabilize prices.
It would appear that one of Minister Ncube’s attempts to reduce inflation is the introduction of a disguised system of price controls. By getting involved in the supply of commodities like wheat and maize, the government is setting grounds for manipulating the prices of these commodities. Government should be warned that this will not work. We have travelled this road before.
Civil servants’ remuneration
Government continues to give civil servants things that they do not want. What the doctors and nurses and indeed the entirety of the civil service demand is an increase of real income to pre-2018 levels. Government continues to dish out benefits, importation of vehicles, houses, transport, school fees among others. Civil servants want live-able salaries in order to be able to afford all those things by themselves. Government continues to miss the point!
200% increase in interest rates
Under normal circumstances, increasing the interest rate would be a positive intervention as the idea is to realize real interest rates that are above the rate of inflation. This should promote savings and discourage demand for money and lead to a deceleration of inflation. However, in our case, the increase of interest rates to levels higher than the announced inflation rate signals to the market that inflation is bound to rise even higher. This is more so given the reported rate of inflation by economic experts like Steve Hanke is estimated to be 377% and the highest in the world. It therefore follows that this measure is not bound to have the desired effect.
Little was said by Minister Ncube about how the gold coin system would function. There is a need to set out a proper framework for the use of gold coins as a store of value and a need to ensure that there are no loopholes that will allow arbitrage and for elites to obtain gold coins at a discounted rate.
Way forward – the alternative
A CCC government will restore confidence in the government through ethical leadership, consistent policies, addressing the currency crisis at its root, the creation of an entrepreneurial society where there is wide consultation with key stakeholders before policies are created or changed, the building of a shared and inclusive society and the creation of an economic environment that promotes opportunities for widespread prosperity, especially for the ordinary citizen.
In the immediate to short term, we will dollarize and drop the charade of a local currency. Civil servants will be paid in USD. We will eliminate export surrender requirements, deal with the debt burden and fight corruption as well as funding the social sector and pursuing fiscal consolidation. Such measures will immediately arrest inflation and bring back confidence to the market.
We will proceed to build foreign exchange reserves, which, with gold reserves, will back up any new currency. Thereafter, we will introduce a Currency Board which will give much-needed confidence to economic players. The reserves and gold can then be held in a trusted foreign account which is held transparently.
Once there is stability through dollarization, we will then focus on growing the economy. To this end, we will implement a raft of policies that stimulate growth and attract investment into the country.
Conclusion – a CCC Government will create economic opportunity for all
The CCC will promote a market-led, entrepreneurial society that is socially just and inclusive. This includes policy formulation that will deliberately take into account those who have previously had unequal access to opportunities by reason of gender, ethnicity, region, race and other points of disadvantage. We will do this mindful of the fact that creating opportunities requires the construction of a stable and growing economy. This also requires the state to ensure that there is adequate housing, a sustainable and clean environment, food and the realization of all socio-economic rights that will improve the daily life of all citizens.
Vote for change.