Comprehensive commentary for the RBZ 2015 Monetary Policy on a Financial Conundrum

The 2015 Monetary Policy statement came at a juncture were the economy is in much need of care. It is the moment were rhetoric, imaginative and unattainable policing is not welcome. Welcome, it is the fact that the RBZ decided to play in the indents in as much as its hands are untied. I have realized they touched on the most important issues to be addressed. Throughout the statement one would pick the emphasis on dealing with fundamental issues of the market before taking huge leaps to introduce technical and quantitative means. The most sticking moments about the past are the hurting ones but nostalgia keeps us on the fighting lane. I still believe in Zimbabwe and I really subscribe to the vision that there will always be found a solution to the economy if we take a closer look.

Like the governor has explicitly stated the Monetary policy has come at a time the nation is in need of solutions to address the intertwined challenges of uncompetitiveness, low productivity and lack of confidence (or war of negative perception) besetting the economy. Further to that he has highlighted the major causes of uncompetitiveness of local products as the higher costs of production emanating from high mark-ups to sustain high overheads epitomised by high utility tariffs, finance charges and wages and salaries which are higher than those obtaining in neighbouring countries and beyond. In addition the continued appreciation of the US$ against the country’s major trading partners’ currencies has made imports cheaper thereby making local goods uncompetitive. I believe the latter is the the major though and the former can be blanketed in it somehow. 

The monetary policy was on point in stating the problems that the economic is facing, the governer was no too optimistic neither was he persimistic on the future of the economy. He ordained the problems in a fashionable way that made me believe he is really aware of where we are and where we are going as a country not forgeting where we came from. On his solutions to the problems the governor has shown compassion but again he chose to be realistic. The situation in which the RBZ is into is enough to be called a dilemma because one can not expect a troubled institution to help another troubled organisation. The ability of RBZ to contain the economic situation can only be enhanced by taking the decision to solve the internal crisis of which the first initiative has been taken to restore the Interbank market. Then there comes another issue at hand and must be immediately addressed and that's the debt issue. I am of the opinion that the government assumes the debt and take RBZ off the burden to concentrate on more important issues for the revival. If we have to trace down on individuals who owe the RBZ i still believe the same can happen in the hands of the government.

Through the monetary policy statement the Government has also shown commitment to the multiple currency system which is said to be preserved up until the following economic fundamentals have reached acceptable and sustainable levels:

i. Minimum foreign exchange reserves equivalent to one (1) year of import cover;

ii. Government budget;

iii. Interest rates;

iv. Level of domestic business confidence (business sentiment);

v. Inflation rate;

vi. State of (and confidence in) the financial sector;

vii. Consumer confidence;

viii. Ability of wages to keep up with prices; and

ix. Health of the job market.

The reality of the national economy is that all the above economic fundamentals or indicators are weak to even contemplate the return of the local currency, they have said but I believe otherwise here. These signs are a reflection of the absence of the local currency which if it has to be introduced it has to be tactiful. It is not wise to bring back the local currency now i concurr but I believe methods and measures have to be taken to make the level field for it. We can not continously run away from the truth on this issue, Period.

The market outlook for the banking sector was very impressing, profitability in the sector has gone up and deposits are growing. The introduction of ZAMCO has also been welcome but much of the technical work still needs to be done and religiously some measures has to be implemented to curb moral hazard. Distresed banks are not much of a worry as the market is taking is realigning. It has been known and established for quite some time that the market was over banked and those are the signs of adjustment and only sound and efficient banks will beat the test of time.

However, on the Rehabilitation of the Manufacturing Sector the monetary policy failed to provide a soluble solution, DMAF is not such a good solution at this moment because of several reasons that has left some of the companies it wishes to repair irepairable. However, to this end welcome is the issue of Addressing Cost Drivers for Competitiveness. These cost drivers include, but not limited to, municipality tariffs, environmental management fees, and some non-tariff barriers. Such fees and/or tariffs increase the cost of doing business in Zimbabwe. 

Clearly this monetary policy was full of sentiments and it lacked on quantitative and technical ways of addressing economic problems. However, it is not bad as we are slowly moving towards that. The issue of bond coins is one of the steps taken but RBZ through this monetary policy has shown it has been incapacitated to deal with, Inflation rates, Interest rates and liquidity issues. I urge they keep on looking around on how best to deal with those issues. Finding a solution to them it is in my belief that we will have the economy solved and restored. Pleasing in this regard however, is that a number of local financial institutions have adjusted interest rates downwards to levels below 10% per annum for their performing customers in the productive sectors of the economy. Such development is greatly appreciated and should be intensified.

Candid about the monetary policy was evidenced by the calls to address market fundamentals of which it's a first good step to take.....Keep on the track Mr. Governor we believe in you!!

Open Letter to RBZ Governor

Dear Dr. Mangudya

Your address to journalists was on point and you articulated on most of the issues affecting the economy. You spoke so gloomy about the problems but the solution side left a lot to be desired especially in the wake and spiralling of the said problems which are continuously eating away our chances of stabilizing the economy let alone growing. Sir, you announced a salary freeze, not to my surprise because obviously you can’t increase salaries on a contracting economy. You called for investments in the three sectors you have named, maybe on this one you meant FDI if not such calls are doomed with cash strapped Zimbabweans. The only affordable business to many as it stands is importing and selling and yes that’s the cheapest thing to do. You also called for value addition of resources before exportation to balance BOP. Of note Sir, you also pointed out on the issue of the appreciating US$ which is proving to be a more expensive currency for the economy compared to our trading partners making imports cheaper in the process. On this I believe the short supply of the US$ is again exerting more pressure on the situation and it is in our watch as the situation deepens.

You made a good note of the problems sir, but the problems will always remain if we navigate the root of the problem. All these economic problems you have stated are not but signs of a chronic liquidity crisis that is growing day in day out. Maybe it’s because we have lost courage as a country to solve our problems but not to an extent of disillusioning ourselves in the pretext of a comfort zone that is non- existing. The major and main problem to the situation is the currency and only the currency I repeat. Finding a solution to the currency problems will see the situation remedying itself without further efforts. You cannot tell a lowly paid person to opt for a locally made expensive good. Yes local goods are expensive and you have mentioned it, it’s a currency problem. Yes we are lowly paid because there is no production in companies; they cannot produce where there is no demand. It also balances back on the currency problem. Companies are always crying if they could find cheaper lines of credit they would expand and with a borrowed currency obviously we cannot do anything. On this issue and for the second time, when asking for advise please go for people who have knowledge about the situation and stop asking fear-gripped people, they will obviously say no to our own currency but that is the only solution. Speaking of which, I am not ignoring the blackened past with our own past but I thought we had picked a lesson from it and this time we might do things the right way. One honourable thing I also continuously call for is to draw the lines between politics and economics at least for this case. How about establishing an Economic Intelligence Unit to carry out the task and you put some of our brightest minds in there to tackle the problem. I think this one works and I have the confidence. Looking at Germany today you won’t believe they once crippled like we have done

To take back the economy on track, I think this will definitely work and I am 100% confidence it will. Yes we need policy documents to support our vision and goals. We need a budget as a country. We have the budget; we have the ZimAsset which I barely read because of the following reason: It might have been the best of the policy document ever penned but without political will and financial capacity it doesn’t make any sense. And on financial capacity, if almost all government collections are going to paying salaries, for the people you have said not to be productive then we are just experimenting with the economy sir. I heard you vowed you won’t do so but you are already in it.

Sir, our economy misses our own currency period. http://263chat.com/open-letter-to-rbz-governor/

Francis Chinjekure