There is more to recovery than this
VE Bank governor Gideon Gono on Wednesday produced the first review of his monetary policy statement announced in December last year. The governor and the business community agree that frequent reviews to take corrective action on policy issues are an indispensable part of any turnaround mission. The reviews will now be carried out quarterly.
The monetary policy statement unveiled in December sought to contain inflation to maintain the internal value of the Zimbabwe dollar, and hence protect real incomes.
It was also designed to arrest pressures on the exchange rate to maintain the external value of the dollar through exchange rate stability.
The policy was meant to normalise foreign exchange market trading, stem job losses, promote a stable financial system, re-engage the international community, and begin to build foreign currency reserves as well as support the productive sectors of the economy through low-cost finance while allowing the market to determine rates for non-productive, non-priority-level spending.
Gono has made some strides in achieving these objectives.
He has implicitly told the nation that the Zimbabwe dollar is over-valued against major currencies and has, in practice, devalued the local currency to boost exports by offering a more attractive exchange rate.
He has managed to restore order in the financial services sector, which was beginning to behave like a bull in a china shop. He has tried to strengthen the financial sector through enhanced corporate governance, closer supervision and tighter financial controls.
Gono’s major headache, according to the business community, is inflation, the continued pegging of the Zimbabwe dollar against the US dollar at unrealistic levels for most transactions, and his failure to adequately address interest-rate policy.
At around 583%, inflation remains extremely high when compared to our neighbours and major trading partners, especially South Africa which has a 7% rate.
While the new year-on-year inflation rate for March is 583,7% compared to a record 622,8% in January, it is still unsustainably high and continues to cause untold headaches for Zimbabweans across the board.
Citizens are now accustomed to trillion-dollar budgets.
Gono says his year-end target of 200% remains achievable “provided we sustain current efforts and buttress them with further fiscal and monetary measures”.
Failure to sustain and improve on current efforts, including failure to exercise restraint on costs such as fuel, electricity, water, wages and salaries in 2004, he said, will militate against inflation targets and further worsen our quest for economic revival and stability.
We believe the governor is too optimistic with his 200% figure. There is at present too little fiscal discipline to complement his measures. Several ministries have already exhausted their votes allocated last November and given the current electoral drive it is unrealistic to expect ministers to stop spending.
Gono has said his turnaround strategy seeks to bring together various stakeholders in order to tap into their individual and collective experiences on the way forward.
The opposition Movement for Democratic Change (MDC) would dispute this because they claim they are being left out of the national discourse by an executive that has sought to hail Gono as a party strategist. They have not been consulted on the country’s many problems. When they offer suggestions, they are rebuffed. In other words a huge constituency of our population is being treated as if they do not exist.
The governor cannot ignore this fact. Donors have made it clear there will be no balance-of-payments support until economic policy reflects a national consensus — ie until there has been a political settlement.
Gono admits, quite rightly so, that his interest rate policy leaves much to be desired.
“We have also, historically and most recently, not adequately and consistently guided the market on our desired path of interest rates as we pursued the twin objectives of a quick supply response and a disinflation programme,” Gono said.
He conceded the interest rate structure has been unnecessarily punitive to borrowers while at the same time dis-incentivising savers. He hopes the policy review statement would seek to correct these shortcomings.
We however hope that more is done on the political front to solve the country’s problems which obviously go beyond the governor. The rule of law would be a good start.
The International Monetary Fund, which had a monitoring team here last month, has painted a gloomy picture of the country. It said Zimbabwe’s economy has experienced a sharp deterioration in the last five years. Real gross domestic product has declined by about 30% and is still contracting. That, together with inflation, is debilitating the nation.
While Gono criticised the “deliberate sabotage and disruption of productive land, factories, mines, and tourism”, his essential weakness remains his proximity to the ruling party which obliges him to studiously ignore the national governance issues upon which the success of his policy depends.
This leaves most of his good intentions firmly stuck to the pages of his statement. That is a pity.