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‘Fiscal discipline critical for stability’

Panashe Chikonyora

Fiscal discipline is important if Zimbabwe is going to achieve monetary stability in 2020, economists have said.

Zimbabwe has been undergoing a currency change from the use of multiple currencies to the re-introduction of local currency – Zimdollar.

In the latest development in this respect, the Reserve Bank of Zimbabwe said it will release higher denomination notes to improve cash availability in the market.

Economists who spoke to Herald Finance & Business have expressed mixed views on the higher denomination ($10 and $20) bond notes.

Pan African Chamber of Commerce board member Langton Mabhanga, said the introduction of higher denomination notes without integrity and ethical behaviour by the monetary and financial system is insufficient in taming inflation.

“There is a full record of new notes unleashed straight into the black market domain. We need tight regulations that monitor and control deployment of the high volumes of RTGS balances that are resident in the banks’ profit wallets.

“These balances can be the hot money being deployed to mop up US dollars on the black market hence pushing prices of commodities up and consequently pushing inflation up,” he said.

“The way the RBZ is dispensing money into the banks is depreciating the value of our local currency because more money in the banks means more cash will circulate in the black market and the foreign currency market will continue to expand as dealers will continue to change money at higher rates… Higher rates will lead to price increases and further surge inflation.

“The Minister of Finance and RBZ Governor must put the banks on the latch and stop them from unleashing bulk notes into the black market.

“We rather have two ethical banks than the current too many that are fleecing the transacting public and fuelling inflation,” added Mr Mabhanga.

Inflation is the rate at which prices of goods and services in an economy increase over a measured period, mostly a month or a year.

Normally, it is caused by various factors key among them being an increase in the money supply that out-paces economic growth, which usually leads to higher borrowing costs for businesses and people needing loans and mortgages.

However, a decline in inflation does not imply a decrease in prices, but signifies slower pace of average price increases, as the pricing regime in Zimbabwe is largely linked to the money supply determined exchange rates.

Last year Zimbabwe’s inflation rate for October reached 39,9 percent (the highest rate), but later retreated to 17,5 percent month on month towards year end, in November (the lowest rate in the last five months).

Confederation of Zimbabwe Industries (CZI) president Henry Ruzvidzo concurred with Mr Mabhanga, saying that the move can be positive if “fiscal and monetary authorities remained disciplined to maintain relative stability.”

“The arbitrage space that has been in existence with bond notes is unhealthy. If sufficient currency is introduced some stability can be achieved as the velocity of electronic money is much more than for cash,” he said.

Meanwhile, economist Eddie Cross lauded the move, saying that it is positive.

“The impact on inflation will be negated by the MPC insisting that the new notes are only introduced to the market via the commercial banks. But it will help with liquidity and enable people to use the local currency in the market,” said Mr Cross.

At its last meeting on November 29, 2019 the Monetary Policy Committee (of which Mr Cross is a member), noted that the country’s expansionary fiscal policy was expected to pile inflationary pressure on the economy.

The Committee noted that the country’s 2020 National Budget had potential expansionary impact on money supply, which limits the scope for tightening of monetary policy as required under the bank’s disinflation programme.

The central bank last year said it was targeting monthly inflation of 10 percent.

Said Confederation of Zimbabwe Retailers president Denford Matashu:

“Without being pessimistic the currency challenges in our economy will not go away anytime soon as long as the level of informalisation in our economy is averaging 70 percent. Money, just like blood, has to circulate. There is no point in blaming RBZ governor of the current hyperinflation as the key drivers remain shambolic like production, informal sector burgeoning and low levels of exports.

“Bigger notes, even if you repaint them, will not do much in a country full of speculators, dealers and non-productive citizenry. We have also become lazy and mourn with no production even at household level. The mentality to wait for government to do ‘things’ for us should go away.

“I think it depends on how these higher denomination notes are being introduced. If they are being introduced as additional money they will increase inflation rate, but if they are introduced as something that already existed when the new bond notes were introduced or as a replacement then they won’t surge inflation.

“I think Government has played its part and we as citizens are to blame.

“For example, the mono currency system government introduced which people are fighting. We are playing with money especially if you look at the informal sectors. Commuter omnibus operators are getting a lot of money which they are not returning to the banks. This simply means that people are milking money from the banks, hence money is not circulating.”

Source :

The Herald

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