Mthuli Ncube vs Mangudya currency rift: Mnangagwa intervenes

Reserve Bank of Zimbabwe Governor John Mangudya presents his Monetary Policy Statement, while Finance and Economic Development Minister Professor Mthuli Ncube and Permanent Secretary George Tongesayi Guvamatanga look on at the RBZ in Harare yesterday. —(Picture by Tawanda Mudimu)
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HARARE – President Emmerson Mnangagwa has been forced to intervene in a growing turf war between Reserve Bank of Zimbabwe governor John Mangudya and his boss Finance minister Mthuli Ncube on the path Zimbabwe will take to deal with a deepening currency crisis.

Well-placed sources say President Mnangagwa met Mangudya in a crucial meeting last night that would assist in shaping and finalising the much awaited Monetary Policy Statement (MPS). The MPS was expected to have been delivered either in the last week of January or first week of February.

However, disagreements over proposed currency reforms has seen the MPS stall to a point that requires executive intervention. Several options to deal with the currency crisis include, redollarisation, reintroduction of the local currency, rand adoption, liberalisation of the RTGS and bond note as well as ringfencing deposits to mop up excess liquidity to lower the premium rates on the US dollar.

It is believed that while Mangudya and his team tabled local currency re-introduction as the most viable option under the current circumstances, Ncube is only prepared to go as far as liberalising the exchanging rate, an option preferred by the Bretton Woods Institutions. According to Ncube, a local currency can only be introduced within 12 – 18 months.

An International Monetary Fund technical team, which was in the country this week is said to have suggested floating the exchange rate but also warned of the implications this could have on the socio and political environment. This follows a similar push by the African Development Bank. The IMF team is also said to have forced some revisions on the draft MPS.

Sources said Mangudya was concerned that devaluation would result in the collapse of bank balance sheets as most banks were borrowing offshore for on-lending in RTGS. He is also opposed to the move on grounds this will destabilise the economy by putting wage pressure on companies, cause inflation and driving the cost of goods up.

Government was however forced to deny the re-introduction of the local currency this week based on comments on Twitter by former Finance minister Tendai Biti that the reintroduction was due this week although it would not be backed by any fundamentals.

The rand option is also being thrown around considering that this has been a consistent message from industry, which has South Africa as its trading partner but Government is not too keen on that position.

Contacted for comment, Mangudya said he was in a meeting. Later on, he was not picking up calls and a message sent had not been responded to by the time of going to press.

Ncube could not be reached for comment but early this week he told journalists that the MPS would be presented soon without revealing specific dates. Traditionally, the MPS is presented during the first week of February. Asked when the Monetary Policy Statement would be presented he said: “Let’s just say around this time.”

Presidential spokesperson George Charamba declined to comment saying any comment on monetary issues could destabilise the market.

The bond note was introduced in 2016 as an export incentive facility and guaranteed by the African Export-Import Bank. RBZ said it was at par to the dollar despite insistence by several sectors that the parity would not work warning that the surrogate currency would quickly lose value against the greenback.

Analysts expectations are not on devaluation nor the introduction of a local currency but rather that the RBZ mops up excess liquidity through a long dated bond to strengthen the RTGS rate, which is already the pseudo local currency while also introducing a foreign currency auction system.

In his last Monetary Policy Statement, Mangudya split bank accounts into nostro foreign currency accounts (FCAs) and RTGS (real time gross settlement) FCAs in what analysts say was an admission that the bond-dollar parity could not be sustained.

The currency crisis has given rise to price distortions particularly on consumer goods. Prices of some products in RTGS terms are cheaper if one converts using the parallel market rate than what is obtaining in the region while on the other hand, prices are beyond reach for the ordinary consumer whose salary has not changed and moreso for the tourists whose transactions on international cards are rated at 1:1 on the US dollar.

The President’s intervention, whose details were sketchy at the time of going to print, also comes as foreign diplomats accredited to Harare are piling on pressure for Zimbabwe to come up with an acceptable currency reform policy, cognisant of the fact that some of their nationals have technical fees, dividends and investment income which are still stuck in the country.

Business Times is reliably informed that the foreign diplomats, due to meet Mnangagwa today at State House, told Harare to shelve the introduction of a local currency until the right fundamentals are in place.

Information at hand suggests government has been in deliberations with diplomats whose countries are key trading partners with Zimbabwe. A top diplomat who requested not to be named said he met Mangudya recently to discuss a number of issues including the Monetary Policy Statement.

“Right now we have dividends stuck in Zimbabwe and nothing is moving. If you have an environment that makes one investor make a loss, then no one else will come and those that are here will close. Why would investors come when you change policies and start selling equipment of businesses that you licence to invest?”

The diplomat said while the Monetary Policy Statement was crucial, government needs to start making tough choices and to create a good environment for business.

“Government needs to start talking to business and foreign investors. They must listen and make changes that ensure investors make money because they come here for money and if they can’t make money then why do they stay?”

The diplomat also added that government and the generality of Zimbabweans should stop waiting for foreign bailouts to end the economic crisis. This comes as Ncube is on the hunt for credit lines. He is expected to visit China to discuss bailout options after his visit to the United States next month.

“The solution lies in foreign direct investment and domestic investment not bailouts. When you grow investments then you have jobs and a bigger tax base which needs to be preserved and allocated towards reinvestment not recurrent expenditure,” he said. – Business Times