The only issue Mthuli Ncube should confront in 2022

The main issue that the nation and Finance Minister Mthuli Ncube should confront in 2022 is the foreign exchange market, says economist and former Monetary Policy Committee member Eddie Cross.

Writing on his personal blog, Cross said: “During the past three years we have made enormous progress in this respect. We have a market which operates on a weekly basis, and which produces an exchange rate which now finds wide acceptance by businessmen throughout the country, and which has laid the foundation for a recovery of the productive sector in Zimbabwe.

“But we have failed to meet demand for hard currency on the auction and delays in settlement together with the accompanying cash flow problems for companies have undermined the benefits of the new system.”

Zimbabwe introduced the foreign currency auction system on 23 June 2020 and has so far held 77 auctions. The last auction was on 14 December and the first for this year will be on Tuesday, 11 January.

“The Minister’s problem is that nobody wants change. Everybody recognises that the informal sector rate which seems to dominate domestic retail prices is completely unjustified and does not represent the real value of the local currency in any respect,” cross says.

“While acknowledging all of this, I do not know of a single businessman or a bank which would support the strong medicine which is needed to cure this malady. I am afraid that the Minister is going to have to tackle this thing on his own and I trust that when he does that the President will see the need for the measures, he must take in order to put the Zimbabwean economy back on a path which is sustainable and self-supporting into the future.

“In my view this is the only issue on the table for the Ministry of Finance in 2022. Zimbabwe continues to pursue policies in respect to foreign exchange management which represent an aberration in the context of global practice.

“Even in countries that are desperately poor and bear no resemblance to the Zimbabwean economy, their authorities have been able, over the past decade, to introduce policies which have established a normal foreign exchange market and created the conditions for an acceptable exchange rate.

“The exchange rate is probably the most important single pricing mechanism in any given economy. No matter how large or how sophisticated, countries must manage their exchange rate to keep their economies stable and growing.

“In December 2021 our inflation rate for the month was once again just over 5%. In the Zimbabwe context this looks remarkably good, but it is far too high a rate of inflation to really ensure price stability going forward.

“We have created the conditions for the introduction of a more normal exchange rate management system and the time has passed when we can consider any possible alternative course of action.

“If we want to collapse the informal sector rate and we want to get our inflation down to more acceptable levels, then we simply must take the measures that are now necessary.”

The central bank’s monetary policy committee could set the tone for this year when it holds its first meeting on Friday.

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