Monetary policy fuels economic strife: Business

The fiscal and monetary measures announced on Monday will likely increase the cost of business and cause labour unrest, as workers seek higher wages to cushion themselves against the rising cost of living, business leaders said, while the opposition warned the drastic measures would further ruin the economy.


Finance minister Mthuli Ncube and Reserve Bank of Zimbabwe governor John Mangudya on Monday announced a raft of measures that will see, from October 15, banks allowing depositors to hold separate accounts for United States dollars for the first time since January 2009 when the country adopted the US dollar.

The move by the authorities is an admission that the money Zimbabweans have in their accounts is a virtual local currency that will trade in electronic transfers and bond notes.

Ncube also raised taxation on electronic transactions, which since January 2003 have been charged at five cents per transaction, to two cents for every dollar transferred electronically as part of efforts to start taxing the informal sector.

The measures are just a start, with Ncube expected to provide details of his two-year economic plan on Friday, likely to include tougher measures, as he bids to stop the economy’s slide since the end of the government of national unity in 2013.

Confederation of Zimbabwe Industries (CZI) president Sifelani Jabangwe said although the measures were positive, the 2% mobile money transfer tax measure must have a cap.

“One thing that we expected as business is to deal with big pains such as access to foreign currency and I think that will be addressed. The separation of nostro accounts and RTGS [real time gross settlement] accounts helps those that need to access their money in USD. The new measure is like the protection of private property because those who earned (the USD) will access it. This is a very big step, which is positive,” he said.

“The move to introduce the 2% on every dollar is good because it expands the tax bracket, but there is a side which I don’t think they noticed, that for business, it is costly.
What we need to do is to put a cap on that because suppose I’m paying salaries, I will be charged or when buying goods. Therefore, if you don’t put a cap, it will increase the cost of doing business,” Jabangwe added.

Zimbabwe National Chamber of Commerce chief executive Christopher Mugaga said the measure risked endangering the “Zimbabwe is open for business” mantra.

“It’s a policy statement where the governor is trying to deal with problems which are real, but cannot confront them for a number of reasons. Some of them are political and some are social because you can see the tone of the central bank governor in his monetary policy acknowledging that we need to quarantine the Nostro FCA and RTGS FCA,” Mugaga said.

“By separating them, he is acknowledging that we have bad money and good money. But by maintaining a 1:1 parity, he is wary of the political implications of trying to separate them because that might cause a public revolt.”

He said workers would likely push for salary increments, given that the value of their salaries would also fall.

“Prices for goods and services will go up, which increases the cost of living in this country,” Mugaga said.

“By quarantining these accounts, he is trying to be real economically, but he is hamstrung politically. There is also the risk that this monetary policy will deepen the parallel market.”

But University of Zimbabwe lecturer and economist Ashok Chakravarti described the measures as a step in the right direction.

“You have to realise that we are in a deep hole and it’s going to take some time to come out of it,” he said.

“This is one policy statement and there is a lot of work to be done and if you look at the monetary and fiscal policies, it’s a step in the right direction because the solution is going to take some time, but, at least, in the past, we were going in the wrong direction. Isn’t it better where we are in a situation where we are trying to climb from the hole slowly?

“I think that is the problem with a lot of people who are negative; they are not comparing it with what was happening last year or time before that when things were getting worse,” Chakravarti said.

The MDC Alliance described the fiscal measures and monetary policy statement as “murderous and cruel,” adding that more taxes and attempts to de-dollarise the economy would only further worsen the situation.

MDC Alliance deputy national chair and former Finance minister Tendai Biti said the new measures were likely to fail and worsen the situation.

He warned of a looming shortage of commodities.

“These measures are a disaster being crafted by absolutely clueless people and I think Mthuli is going to be worse than (Patrick) Chinamasa,” Biti told NewsDay yesterday.

“We have got an economy which has been run on the basis of a USD, so once you de-dollarise and effectively bring back the Zimbabwe dollar when the economy is not producing, you are effectively guaranteeing the return of shortages, the return of hyperinflation and so what they did yesterday is to fast-track us back to 2007 and 2008 because the core challenge of the economy is absence of production.

“Those measures actually stifle production and they are going to make the cost of the USD go up, therefore, crippling imports into the country.”

Biti urged people to reject the 2% charge on transacting, saying it serves no purpose to continue burdening the public with taxes when the economy is in recession.

“We are already overtaxed and Zimbabwe is one of the countries that are overtaxed in the African continent. Taxes are 30% of our GDP [gross domestic product] when the average African country is 15%. By raising taxes with the hope that you can extract water from a stone is cruel, criminal, senseless and madness,” Biti said.

“Secondly, it’s cruel and murderous that you steal people’s USDs and people resort to alternative methods of payments, in particular EcoCash, and you go on to impose a premium on that. That is criminal, heartless and that is a major own goal.”

Another MDC Alliance official Tapiwa Mashakada weighed in, claiming Zimbabwe had lost an opportunity to reform.

“The elephant in the living room is the bond note, which is bad money chasing good money. The governor blew the opportunity to get rid of this surrogate currency and, as a result, the three-tier pricing system will continue,” he said.

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