PRESIDENT Emmerson Mnangagwa has effectively clipped the central bank’s powers after the government this week gazetted a statutory instrument which stops the apex bank from borrowing without Treasury’s green light.
BERNARD MPOFU
The move comes barely two weeks after Finance minister Mthuli Ncube announced several measures aimed at stabilising the economy.
The southern African nation is battling a weakening domestic currency, high levels of inflation, among other socio-economic problems. Mnangagwa, through his presidential powers, this an[1]nounced through a statutory instrument that the Finance minister would have the prerogative on external loans, effectively cur[1]tailing traditional central bank’s roles.
“The Reserve Bank of Zimbabwe Act [Chapter 22: 15] (No 5 of 1999) is amended in section 7 (‘Powers of the Bank’)(1) by the insertion of the following proviso to paragraph (n) – Provided that (i) the Bank shall only borrow on the behalf of the state at the instance of the Minister, and not on its own behalf; (ii) if such borrowing affects the reserve requirements of section 49(2)(a) shall apply to the suspension of the reserve requirement,” reads Statutory Instrument 108 of 2023.
Following the decision by Treasury to take responsibility for repaying all foreign currency-denominated loans contracted through the central bank, Treasury has with effect from this month begun funding the Zimbabwe dollar component of the 25% foreign currency surrendered by exporters, in order to eliminate the creation of additional money supply.
The foreign currency collected from the 25% that is surrendered will now be collected by Treasury and utilised in servicing the foreign currency loans assumed from the Reserve Bank.
The Finance minister also announced that banks will no longer withhold any foreign currency surrendered by exporters, and all liabilities to the banks will be settled through Treasury.
Economic analysts flagged this development, querying why Ncube had sidelined Reserve Bank of Zimbabwe John Mangudya in announcing monetary policy-related measures. Gift Mugano, an adjunct professor of economics at Durban University of Technology in South Africa, questioned why Ncube was announcing monetary policy-related issues such as the exchange rate.
Treasury sees the country’s gross domestic product expanding by 3.8% this year underpinned by favourable international commodity prices, normal to above normal rain[1]fall, and continued use of the multi-currency system.
Analysts say achieving this growth is going to be an uphill battle, given the country is currently facing power shortages, inflation and depreciating local currency. Annual inflation has general[1]ly been on an upward trajectory despite the rebasing that took place in February.
