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Finance minister Mthuli Ncube


Mthuli Ncube usurps central bank functions



THE decision by Finance minister Mthuli Ncube to announce fiscal and monetary policy measures to save the Zimbabwe dollar from collapse has raised eyebrows over Treasury’s overlapping roles on traditional central bank duties.


Desperate to save the domestic currency from collapse ahead of the general elections, Ncube this week announced several interventions aimed at stimulating growth.

The Zimbabwe dollar is now trading at US$1:ZW$2 500 on the formal market while one now requires up to ZW$4 000 to buy the greenback on the parallel market.

Among the measures, Treasury will now fund 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 of Zimbabwe. Banks will no longer withhold any foreign currency surrendered by exporters, and all the 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.

“Few questions to @MthuliNcube on today’s (Monday) press statement: Since treasury didn’t budget for the payment of the 25% export retention, where is the money going to come from?” Mugano tweeted after the measures were announced.

“Why is Treasury making policy pronouncements under the purview of the RBZ? In view of the fact that the auction system has been reduced to US$5m per week, isn’t this clear evidence that the economy has dollarised? Why can’t govt just accept this new reality?”

Leon Africa chief executive Tinashe Murapata said Ncube’s announcement signalled a tussle between Treasury and the central bank.

“What do we learn from the tussle between RBZ and Treasury?” Murapata queried.
“What is evidently clear is that GOZ [government of Zimbabwe] doesn’t have enough money. Worse, going into an election. Treasury had taken unprecedented steps to force Exporters to pay directly surrender proceeds into its accounts in its statement. As one would, when they pay taxes. Effectively fiscalising monetary matters.

“Treasury had then claimed that it would settle the 25% surrender receipts with its own ZWL collections. Having witnessed contractors and wheat farmers delayed payments, the market wondered where treasury would get the money. Even today, the market is wondering where Treasury will get the money to pay the ‘foreign debts’ it has assumed. Despite the propaganda of retaining ZWL, the tussle reveals what is most valuable. American dollars.”

Treasury sees the country’s Gross Domestic Product expanding by 3.8% this year underpinned by favourable international commodity prices, normal to above normal rainfall, 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 generally been on an upward trajectory despite the rebasing that took place in February.

In February, annual inflation was reported at circa 80.71% with month-on-month inflation recorded at -1.61% for the same period. Annual inflation closed March and April at 87.60% and 75.23% respectively.

Policy coherence?

Last November, Mangudya, the country’s central bank chief, told The NewsHawks that policy coherence between fiscal and monetary authorities would stabilise Zimbabwe’s floundering economy.

“Let not their hearts be troubled because right now there is coherence and well-coordinated approach between the government and the Reserve Bank of Zimbabwe,” Mangudya said.

“Those are two different entities; the Reserve Bank has the purview over the monetary policy of the country and government through the ministry of Finance has the fiscal policy purview of this country and therefore people who are afraid of fear factors — their hearts should not be troubled because right now there is a well-coordinated approach, which means the government will not unnecessarily put in too much money into the economy because of this funding season. The role of banks is to provide funding to the economy for farmers or industry themselves. So when they go to the market this won’t cause inflation.

“Our job is to provide advice to government on financial matters as enshrined in the RBZ Act. We continuously advise and our advice has so far been taken, that is why we’re so bullish that it is well coordinated. The minister of Finance knows exactly that if he puts too much money into the economy — whether he is going to buy wheat or soya bean from the money that is in his account. Because of coordination that is there, we do believe that the people’s concerns which are genuine are being addressed by the ministry of Finance. ”

What is monetary policy?

Monetary policy is a set of tools used by a country’s apex bank to control the overall money supply and promote economic growth and employ strategies such as revising interest rates and changing bank reserve requirements.

Central banks use monetary policy to manage economic fluctuations and achieve price stability, which means that inflation is low and stable.

Central banks in many advanced economies set explicit inflation targets. Many developing countries also are moving to inflation targeting.

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