Productivity remains key to economic stability: Analysts

Economic players have expressed mixed reactions to the Reserve Bank of Zimbabwe’s (RBZ) Monetary Policy Committee (MPC) statement, following its inaugural meeting and deliberations, saying more needs to be done to ensure economic progress.

In terms of the RBZ Act, section 29B, subsection (1), Finance and Economic Development Minister Professor Mthuli Ncube, in September 2019, appointed a nine-member Monetary Policy Committee of the RBZ that is chaired by central bank governor Dr John Mangudya.

And on Tuesday, the MPC presented a statement acknowledging diverse economic headwinds bedevilling the economy encompassing inflation, money supply, cash challenges, exchange rate and operations of the interbank market.

As part of the deliberations the MPC noted that key basic economic fundamentals remain sound, and in place for the country to meet its stabilisation and development objectives and proposed to enhance domestic cash availability for transactional purposes through gradual increase in cash supply in the next six months.

Commentators have, however, maintained that the country needs to work more on the productivity front which will undeniably have trickle-down effects which will result in sorting out some of miscellaneous challenges being experienced in the country.

In an analysis of the MPC statement, Africa-focused private equity investment and advisory firm, MHMK Capital, highlighted that imports are still weighing heavily on the economy and called for increased efforts to be directed towards stability in the macro-economic environment that will in turn stimulate much needed production. It also called for improved efficiencies on the interbank market to enhance confidence levels at the same time diversifying the role of Bureaux de Change to improve competitiveness.

“Import pressures are still high ranging from business enablers (electricity), equipment, raw materials and consumptive goods. Potential production is still positive, but stability is key to unlock that potential.

“Smooth operation of the interbank market may help improve confidence and circulation of foreign currency in the formal market. Broadening products that Bureaux de Change can offer may create competition in the exchange market that may have positive impact to overall stability,” said MHMK Capital.

Economist Vince Musewe, weighed in saying the committee should acknowledge that there were some critical fundamentals that needed to be addressed to ensure that the formulated initiatives achieve their intended objective.

“We expected some exciting stuff from the monetary policy committee statement but we got the ordinary average stuff as usual.

“Increased cash supply is not going to have much impact, because of a lot of underlying issues like lack of confidence and trust,” said Mr Musewe.

Furthermore, he emphasised the need for inventiveness on ways to enhance production for local consumption and exports to earn the much needed forex.

“We need aggressive and out of the box thinking to solve our issues, like robust ways to improve production and grow our exports to lessen the overgrowing burden of foreign currency demand,” he said.

Another local economist, Prosper Chatambara, noted that the country had a huge informal sector that has negative opinions of the banking sector, hence holding back significant amounts of hard currency.

“We have to understand that Zimbabwe is now a highly informalised country and a significant number of people have lost confidence in the banking sector, so even if the money supply (supply of physical cash) increases, the money is bound not to go back to the banking sector once it reaches the informal sector given the magnitude of the informal sector, which does not believe in banking proceeds,” said Mr Chatambara.

He spoke on the need to correct serious distortions in the market whose ripple effects had led to increased speculative behaviour.

Mr Chatambara said; “There are structural and market distortions in this economy, which have seriously bred speculative behaviour like holding of cash for resale at a premium, especially from the unemployed component of the economy.”

Government introduced new $5 notes and $2 coins that will be in circulation within a fortnight to ease cash shortages that have resulted in cash barons charging premiums of up to 60 percent and the unscrupulous breaking of the law with two-tier pricing for digital money and cash.

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