This was after Finance Minister Mthuli Ncube and central bank governor John Mangudya effectively shorted the unofficial local currency, the bond note and electronic balances which are essentially miracle money created by government on its spending spree.
The central bank directed banks to separate hard currency from these problematic deposits, “to eliminate the commingling or dilution effect of RTGS balances on Nostro foreign currency accounts”.
This policy stance has precipitated a run on both RTGS balances and bond notes, whose value plunged dramatically on the black market, triggering price spikes in shops.
Days after being appointed to lead Zimbabwe’s much delayed economic reform process, Ncube told journalists in New York that, left to his own devices, he would employ a ‘big bang’ programme. He was, however, mindful of a “political collar or the politics of policy making which then slows you down”.
He did seem to be enjoying some latitude when he introduced a 2% tax on electronic payments as well as the ring-fencing of foreign currency deposits, a measure the market read to be the first key step in ending the RTGS/bond note – US dollar parity fiction.
Amid the currency turmoil that followed the policy pronouncements, Ncube looked determined to stay the course.
“Look at the RTGS exchange rate or the bond note exchange rate, the market is already saying ‘hey, these are not at par.’ I’m not about to argue with the market,” Ncube told a Chatham House audience on October 8.
It was not long, however, before he recanted, issuing a statement upholding the ‘parity’ myth from Indonesia, where he attended the annual International Monetary Fund and World Bank meetings.
“Government recognises concerns surrounding RTGS deposits, and we commit to preserving the value of these deposits on the current exchange rate of 1 to 1, in order to protect people’s savings,” Ncube said in an October 10 statement.
Although parallel market rates came off after Ncube’s statement and a central bank announcement that it had started to draw down on US$500 million credit lines to fund crucial imports, some analysts felt government had, once again, opted to kick the can further down the road in an act of political cowardice.
“Austerity measures don’t come with free lunches all over,” economist Brains Muchemwa reacted on Twitter. “The subsidies bonanza, from fuel to cooking oil, is not sustainable. Neither is it prudent to borrow offshore to subsidise non-productive consumption.”
Muchemwa argues for the removal of all subsidies, which currently include fuel, grain and cooking oil, as well as the floating of the exchange rate.
Clive Mphambela, another economist, disagrees on the exchange rate.
Continued next page