Zimbabwe: RBZ Allays Money Supply Growth Fears

GOVERNMENT needs $60 billion to buy maize from farmers this marketing season but this will not trigger money supply growth in the economy, Reserve Bank of Zimbabwe (RBZ) Governor Dr John Mangudya has said.

In the wake of the expected bumper harvest, Dr Mangudya, allayed fears that the Government accounts will not meet payments for maize deliveries to the Grain Marketing Board (GMB), a situation which would compel monetary authorities to print more money.

The printing of more money increases money supply growth in the economy while ultimately triggering inflationary pressures on the market.

Speaking during the Confederation of Zimbabwe Industries annual virtual symposium last week, the RBZ chief said the alignment between the Government and the Central Bank was sound.

“Even though not well informed, some people have been commenting that the maize output is going to require $60 billion, but at the Government accounts, the Reserve Bank has got $13 billion therefore, the Reserve Bank is going to print more money to purchase maize, its not like that.

“The $60 billion is going to be required over a period of time from April or May when people start selling their produce up to end of September.

“Therefore, the $60 billion is not required in one day. It’s a flow, now what the analysts were doing was looking at a snap-shot analysis, but here we are talking of a flow,” he said.

Zimbabwe this year expects to produce 2,5 million to 2,8 million tonnes of maize and 360 000 tonnes of traditional grains, and this could turn out to be the largest yield achieved by the country since the fast-track land reform commenced in 2000.

Already, GMB has announced that it will be paying farmers within 72 hours of delivery and the Government has increased the maize producer price to $32 000 per tonne from the $21 000 that was paid last year.

Dr Mangudya said in the first week of the marketing season, the monetary authorities could release $5 billion to pay the farmers.

“When we sell the maize to the millers, they (millers) also pay the money to the Government or GMB and, therefore, money circulates. So, if you assume that money does not circulate, you come to that conclusion (RBZ will print more money to finance grain purchases),” said Dr Mangudya.

“We do believe that the Government has capacity without coming to the Reserve Bank for borrowing to continue to support agriculture, to purchase the output in excess of $60 billion over three to four months.

“And because it’s a flow, companies will also be coming to pay their quarterly payments to Zimra (Zimbabwe Revenue Authority) at the end of the day, that’s how the economy functions.”

On the tobacco crop, which is Zimbabwe’s major foreign currency earner, output is expected to improve to 200 million kilogrammes this year compared to 185 million kg in 2020.

“I also want to advise the tobacco farmers that the 40 percent, which we liquidate from them is 40 percent net of what they would have paid the contractors for the inputs. Therefore, if we were to gross it up, it’s quite lower than what the other exporters are paid.

“But sometimes again, I read some newspapers saying the bank needs to be fair to the tobacco producers.

“Not only are we being consistent, we are being practical because we also need the funds,” he said.

Dr Mangudya said if tobacco farmers think that their foreign currency is not sufficient, they can also participate at the forex auction to supplement their forex requirements.

Meanwhile, he said RBZ was moving in to flush out unethical companies from participating at the weekly Foreign Currency Trading System over indiscipline behaviour.

In June 2020, the monetary authority introduced the weekly Foreign Currency Auction Trading System with a view to improve forex access to the productive sectors.

Dr Mangudya said the bank had noted financial irregularities perpetrated by some firms who were forming shelf companies so that they can participate more in the auction system.

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