Harare– THE year 2018 saw President Emmerson Mnangagwa leading the country in the mantra “Zimbabwe is Open for Business”, an imperceptible and definite acknowledgement that Zimbabwe as a country, needs the brotherhood and support of other nations to achieve economic prosperity.
The developments over the past month are a testimony to a rocky economic environment and there is a legitimate expectation for everyone to engage and be part of the solution to our national challenges in support of the President’s vision.
Zimbabwe has twin problems which are trade imbalances (trade deficits) and fiscal imbalances (budget deficits).
Shortage of forex and cash are not the problem but simply symptoms of the underlying and unsustainable deficits and imbalances over decades.
The fact that by our own admission we have broken our own laws through borrowing way beyond legally approved limits should be a cause for concern.
So we submit that we have enough forex in the country.
However, it is how we are managing or mismanaging our foreign exchange system that we should address.
It must be said that the relationship between money supply and budgeting is also causing untold difficulties for Zimbabweans.
As a country we have tended to grow money supply with near reckless abandon.
This lack of fiscal discipline has put phenomenal inflationary pressure on the demand for goods and services.
Our attempt and predictable failure to suppress the movement of the exchange rate to reflect inflation differentials is tantamount to creating embarrassing arbitrage opportunities by privileged authorities in the forex allocation chain of command at the expense of the companies who are generating the currency.
This in the end is incredibly inflationary as we witnessed in the run up to dollarisation in 2007/2008.
In 2008/2009, the last time this happened, the government of the day, did put a dramatic end to the insanity through dollarisation and the government went on to compliment this through curtailing government expenditure through “eat what you kill”.
It is really regrettable and somewhat embarrassing for us as Zimbabweans to be seeing the same symptoms of 2008/2009 rearing their ugly and smelly heads.
This has instantly triggered a raging debate throughout the nation on whether we should take the same medicine we took in 2009 and again “dollarise”.
Clearly the country is divided in various platforms with emotions reigning high as the injured population recollects the nightmares of the bearer cheques and the wiping off of their life-long savings back in 2009.
As hard as it may be, it is important that as a country we make a collective decision on which path to take on this matter.
Continued indecisiveness on the currency and exchange rate question will plunge the country into serious financial disintermediation, escalation in prices and uncertainty which undermines investment for long term growth.
Already the distortions have led to serious labour unrest.
More worrying are factories which are limping and have started closing.
We risk losing capital to other countries.
The suspension of operations at Olivine is an indictment.
Olivine and others who will surely follow should be saved.
The closure of one company is one too many in a season where we are rallying around the mantra of “Zimbabwe is Open for Business”.
Zimbabwe should not be a leaking bowel where on one hand we are scuppering for investment while at the same breath we are losing the investments we already have.
The authorities’ insistence for a 1:1 exchange rate for bond notes against the United States dollar is hurting the country in very serious ways and needs to be reviewed and be replaced with a managed floating exchange rate.
The 2009 decision successfully halted and killed hyperinflation.
However, a whole generation of pensioners lost savings and are now leaving like paupers as a result of a decision that was made on their behalf without their input.
There is an inconclusive dispute of how wealth of millions might now be locked up in balance sheets of insurance companies who may have profited at the expense of pensioners.
In similar fashion, in 2016, there was again a unilateral declaration to bring in bond notes.
There was neither sufficient debate nor consultation on the matter.
The far-reaching pain, or at least a part of it, we are experiencing now can no doubt be traced once again to this unilateral decision.
Yes, the government has done well in containing the budget deficit of late, but this may not be enough.
The country has the responsibility to address the tricky question of currency options in an inclusive manner.
The question goes beyond the name of the currency but also foreign exchange management and financial market prices.
This is not an easy undertaking, but it cannot be postponed any longer, otherwise the implications on the economy may be too grievous.
The country is at a juncture where a national consensus is required.
Of critical importance is the need to regain all lost trust, confidence and certainty.
It is against this back ground that I call upon the government to do the following without any further delay:
1. Pursue a managed floating exchange rate and do away with the 1: 1 fixed exchange rate. This move will provide the market with a legal way of obtaining forex through formal banking channels whilst also decriminalising forex trading. Zimbabwe needs this.
2. Do away with the forex allocation system and thus allow the market to allocate forex.
3. Declare the RTGS balances a local currency and monetise it.
Take out bond notes from the market and contain money supply growth.
4. Stick to and respect section 7 (2) of the Reserve Bank Act of Zimbabwe [ Chapter 22:15] with respect to government borrowing not exceeding twenty percent of the previous year’s revenue.
*Gundani is chief executive officer at CEO Africa Roundtable
