RESERVE Bank of Zimbabwe governor John Mangudya presented a Monetary Policy Statement last week in which he attempted a delicate balancing act between ensuring macro-economic stability and stimulating growth.
The policy intervention had its fair share of strengths and weaknesses but, on the overall, it fell short on the most important of all benchmarks: instilling confidence.
Every level-headed analyst can see that the central bank chief is merely tinkering with symptoms of a deep-seated structural malaise.
One example of this is the idle boast in corridors of power that the authorities have successfully tamed the currency monster.
It is a futile exercise in self-deception. Zimbabwe’s economy is largely informalised. The centralisation of foreign currency allocation via the official forex auction system cannot be a permanent solution to the currency conundrum.
The only sustainable way of solving Zimbabwe’s currency woes is to allow the economic laws of supply- and-demand to take root and dictate the real direction of the forex market.
In this country, public officials are in the habit of complicating what should otherwise be simple economic logic.
In an economy ravaged by Covid-19 and in which companies have been sold a dummy about a fictitious “rescue and stimulus package”, why on earth would the central bank drop a bombshell by hiking the cost of borrowing?
By increasing the interest rate through this “money market operation”, it is clear the RBZ is desperate to tinker with market liquidity ahead of the re-opening of the economy when the Covid-19 lockdown eventually ends.
The central bank, it appears, is anxious to smother any speculative tendencies in the post-lockdown period.
But it is a double-edged sword; the few companies that remain afloat are already facing bankruptcy and will now find it increasingly difficult to access finance.
While it is crucial to control money supply growth, the RBZ must also take responsibility for its own indiscretions in that regard. In recent weeks, we have heard from the now-disbanded Monetary Policy Committee how tonnes of money are being printed every week for the purchase of gold. Quasi-fiscal activities are untenable.
The true test of the RBZ’s monetary measures will come in the aftermath of the lockdown. As demand for forex shoots up, there will be pressure on the exchange rate.
The gap between the unrealistic official exchange rate (at ZW$83:US$1) and the parallel rate (at ZW$130: US$1) is a stark expression of the consequences of mindless economic distortion. It fuels arbitrage.
What the economy needs is thorough root-and-branch reform.
There is no stimulus package for struggling companies, national resources are being looted, and there are no social safety nets for the poor majority. Tinkering with symptoms will not address these serious problems.