ECONOMIC analysts have raised their concerns on the Finance and Economic Development Minister, Prof Mthuli Ncube’s state of the economy report which he presented this Wednesday.
They bemoaned policy inconsistency in the foreign exchange market and how it brings in rent-seeking behaviour across various economic agents.
Speaking this Friday at the State of the economy report breakfast meeting in Harare, Executive Director of Africa Economic Development Strategies (AEDS) an economist, Dr Gift Mugano, said the Minister of Finance and Economic Development’s state of the economy report is filled with policy inconsistencies.
“The recently announced exchange rate management measures by Minister of Finance whilst good on paper faces several risks which will undermine their effectiveness.
“Because the system does not include everyone who wants foreign currency to trade through the interbank, the black market rate will continue to thrive. The Minister’s report is filled will serious distortions.
“RBZ does not have enough liquidity(foreign currency) to seed into the market with a view of stabilising it. There is a misplaced understanding of what constitutes a demand for foreign currency. A large component of demand for foreign currency is coming from the informal sector, economic households and even firms which are not importing all in the name of trying to preserve the value of their money in the face of chronic inflation,” highlighted Dr Mugano.
However the central bank governor, Dr John Mangudya explained to the economists that complete de-dollarisation would be done gradually over five years, based on other countries’ experiences.
“De-dollarisation is a gradual process of the reduction of dollarisation. Most countries in the world they have a level of dollarisation, Liberia is at 70%, Zambia 45%, Zimbabwe is at 32%, Uganda at 32%, Tanzania 30 %, Mozambique 28%, Botswana 15 % and Kenya 13%. The argument is how can we motivate people to utilise local currency not saying how do we throw away the USD,” he said.
Dr Phineas Kadenge, an economic analyst also blamed the finance ministry for inconsistency in its policies.
“The elephant in the room is the Ministry of Finance. We should look at the impact of our policies before implementation. In business we are seeing reduced competitiveness resulting from an increased cost of doing business because of the nature of the policies we introduce,” he said.
The economists stressed that the ministry’s measure of setting up a task force to stabilise the exchange rate and reduce inflation will not work.
“You cannot control the informal sector, they don’t care, they do not even understand what you are talking about. They don’t even know the statutory instrument you are talking about,” said Dr Mugano.
“The informal sector is where the game is now. We have a fundamental disconnect between the politicians, the formal and the informal sector,” said another economist, Vince Musewe.
They also highlighted that while the government is on a drive to de-dollarise, what is happening on the ground is the opposite because the informal sector has dollarised.
The government last year abolished the US dollar-dominated multi-currency regime in use since February 2009 and made the Zimdollar legal tender.
While Government’s policy thrust is to switch the economy to the Zimdollar, some sections of the economy continue to charge in US dollars or index prices to the US dollar parallel market exchange rates. – zbc