Reserve Bank of Zimbabwe governor John Mangudya’s keenly awaited monetary policy statement (MPS) delivered last Wednesday has sparked debate amid fears that the floating of the exchange rate will spark another round of price increases.
Former Economic Development minister Tapiwa Mashakada believes the fears are justified and that the fiscal measures are bound to trigger hyperinflation.
Mashakada (TM), who is also the MDC Alliance’s shadow Finance and Economic Affairs minister, told our senior reporter Veneranda Langa (VL) in an interview yesterday that by June this year, the economic meltdown will enter a dramatic phase where prices will be quoted hourly.
Below are excerpts from the interview.
VL: Has the MPS managed to address the longstanding currency question in Zimbabwe?
TM: No, the MPS has not addressed the currency crisis at all. All that it has done is to address the exchange rate problem.
Now the RTGS dollar has been pegged to the US$ through the interbank market. Due to the fact that the currency is still virtual, bank queues will continue because basic transactions still require cash.
VL: Is the formal floating of the exchange rate at 1:2,5 to the US$ going to work given the high demand for foreign currency and heavy reliance on imports?
TM: The exchange rate of 1: 2,5 is the opening float, which will fluctuate daily depending on supply and demand.
It must be allowed to float and any attempt to artificially fix it will backfire and forex trading transactions will relocate to the parallel market where the exchange rate will be market-determined.
The RBZ must stop sending the bag to the streets. In order to achieve that, bond notes must go.
VL: What are the implications of the MPS on the pricing of goods and services which are already beyond the reach of many Zimbabweans?
TM: The newly-found exchange rate means that the Zimbabwean dollar has been devalued by more than 100%, hence the reasons why retailers have increased prices to maintain the purchasing power parity on the domestic currency. More price increases are looming.
Salaries are lagging behind the price increases as they have been eroded.
Government must review salaries of civil servants by more than 300% to give workers a living wage, otherwise there will be wildcat strikes.
VL: So if salaries are increased by 300%, does it mean a supplementary budget will need to be brought before Parliament? What are the implications?
TM: The whole idea of stabilisation is to achieve fiscal balance on dead bodies. If people cannot survive on pay, how sustainable can this be?
Civil servants have to get reasonable pay to eke out a living. What this means is that stabilisation will incite a revolution for wages and salaries. That is my fear.
VL: The RTGS dollar itself is electronic money, and you tweeted saying that effectively Zimbabwe has a new currency. Can you explain what you meant?
TM: Zimbabwe has a proxy currency called RTGS dollars with a market-determined exchange rate. It’s a currency by any other means.
In fact, the RTGS dollar is a hybrid of a fungible currency and a cryptocurrency. RBZ remains coy on calling it domestic money, but it is a de jure currency.
VL: What are the monetary policy options that you would have put in place if your party was in charge?
TM: An MDC Alliance government would have gone to complete redollarisation pari passu, addressing the requisite fundamentals and restoring market confidence as we did it in 2009.
We would have never introduced the surrogate currency. This government is clueless on monetary affairs.
VL: While the RBZ has set the US$ to RTGS rate at 1:2,5 — the parallel market rate is at 1:4. Do you see the RBZ policy measures completely destroying the black market which has been one of our problems? How best can we deal with the black market?
TM: There will never be an equilibrium between the parallel market and the official market. Marginal premiums will always exist because of supply bottlenecks. In fact, no country has managed to totally destroy the parallel market due to information asymmetry and agency profiteering.
VL: The RBZ governor said the central bank had arranged sufficient lines of credit to underpin the foreign exchange market, but he would not be drawn into disclosing the source or quantum. What is your comment on issues of transparency on deals entered into by the central bank?
TM: The RBZ is posturing when it talks of guarantees. They have been economical with the truth in the past when they claimed (they had) Afreximbank guaranteed bond notes. Nothing could be further from the truth. It’s fake.
VL: At the rate which we are going, and with conflicting policy pronunciations, do you see this country’s economy improving?
TM: I don’t see the value of monetary policy pronouncements by the RBZ. Each time the RBZ governor opens his mouth things go haywire.
Prices increase and the market speculates to further the crisis. So, really the MPS has destroyed the economy and it must be stopped forthwith. People do not like the government. They do not have trust or confidence.
VL: How can Zimbabwe restore confidence in the financial sector so that people become confident to invest and also have confidence in the banking system after their accounts were raided in the past?
TM: This situation of them versus us is going to be there for as long as the question of legitimacy has not been addressed.
By June, the economic meltdown will enter a dramatic phase where prices will be quoted hourly. There is no production. The deficit is still high and corruption remains unabated.
The country is highly militarised and the people’s freedoms are being truncated. Zimbabwe has reverted back to its pedestal as a pariah state. The new dispensation lost its campass too early.
Confidence requires that the guns be silenced and genuine dialogue chaired by an independent arbiter is started.
There has to be a new paradigm shift with the MDC introducing a game-changing political economy in this country.
The MDC has the people’s support and the answers. Zanu PF can only ignore the MDC and its civic society matrix at its own peril. Let us build a new prosperous Zimbabwe together.
Source : Zimbabwe Standard