Zimbabwe needs to move away from supermarket economy to productive one says RBZ governor


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Central Bank governor John Mangudya says Zimbabwe needs to move away from a consumptive or supermarket economy to a productive one and curb capital flight to transform its economy.

In his monetary policy statement released this week, Mangudya said transforming the economy also needs a transformation of the mind set “to move away from the current short-termism approach besetting the national economy to long-term strategies that include harnessing of youth and creation of jobs”.

“Transformation, like charity, begins at home. It requires national collective responsibility to transform from within in order to stimulate the economy through plugging gaps and loopholes. This is the best way to boost confidence and enhance liquidity within the national economy. We have, as a nation, lot of room for improvement on this front,” he said.

Below is the introduction to the monetary policy statement:

This Monetary Policy Statement is issued in terms of Section 46 of the Reserve Bank of Zimbabwe Act [Chapter 22:15]. The strategies and prudential policy measures in this Statement are intended to transform the economy through rebalancing it away from being a consumptive or supermarket economy to a productive one; and away from the high incidence of capital flight characterised by the externalisation of export sales proceeds to one that safeguards its hard earned foreign exchange resources. This is necessary in order to give impetus to effectively deal with the negative inflation (or deflation) environment besetting the economy. Rebalancing the economy would also need to involve transformation in human capabilities in terms of mind set, to move away from the current short-termism approach besetting the national economy to long-term strategies that include harnessing of youth and creation of jobs.

Whilst comprehensive economic transformation is a daunting task in view of the current impediments that include adverse developments in the global economy, external shocks due to climate change, an expensive U.S. dollar, etc, Government has made major strides towards embracing economic transformation. The milestones or strides include the 10 point economic reform agenda, rapid results approach framework for the ease of doing business, banking sector reforms, business friendly indigenisation frameworks and the re-engagement and external debt clearance initiative.

Transformation, like charity, begins at home. It requires national collective responsibility to transform from within in order to stimulate the economy through plugging gaps and loopholes. This is the best way to boost confidence and enhance liquidity within the national economy. We have, as a nation, lot of room for improvement on this front. Illicit financial flows (IFFs) are our major leaks. The issue is not necessarily that too little money flows into Zimbabwe. Rather it is what consumers and businesses do with that money. Too often it is spent on unproductive uses, IFFs (trade mispricing, externalising of export sales proceeds and remittance of unproductive and unsanctioned investments), etc. Such funds leave Zimbabwe without circulating in the economy. We are exporting liquidity. We therefore need a national “plugging the leakages approach” to transform the economy. To plug the economy from IFFs, tax evasion, porous border posts, smuggling and non-repayment of loans. This needs high level of self-discipline and compliance to non-negotiable values of transparency and accountability.

Transparency and accountability in the utilisation of scarce financial resources is very necessary to make sure that money circulates within the economy for public good and economic transformation. According to Lynne Twist “money is only useful when it is moving and flowing, contributed and shared, directed and invested in that which is life affirming”. This assertion by Lynne Twist is fundamental to the Zimbabwean economy. We need, as a nation, to apply money efficiently and legitimately in order to make it circulate i.e. “moving and flowing” as observed by Lynne Twist in her book, “The Soul of Money”.

This Monetary Policy Statement therefore presents the Reserve Bank’s (the “Bank” or “RBZ”) response to foster its key mandate of financial sector and price stability within the context of the above imperatives. This mandate would be achieved, inter alia, by;

  1. enforcing discipline in the utilisation of financial resources within the multi-currency system;
  2. promoting financial inclusion;
  3. addressing the cost of finance; and
  4. giving direction to the financial sector on the implementation of the socially and economically desirable value chain principle of the indigenisation and economic empowerment policy framework.

The Bank is convinced that a conducive financial environment encourages savings mobilisation, productive investment and international competitiveness of domestic producers and, thus, contributes towards the broader national objective of sustainable economic diversification and transformation as envisaged under Zim Asset.

For the avoidance of doubt, the Bank has no objection with the bonafide uses of money or foreign exchange by both individuals and business. What we are very much against and deeply concerned about is the abuse of hard earned financial resources through illicit financial flows (or capital flight), smuggling and misappropriation of bank loans. Remittance of dividends and profits, for example, is bonafide but the remittance of revenue is not at all bonafide. These nefarious activities are short- circuiting or draining the financial system and creating liquidity shortages. We cannot carry on like this as a country. We need to draw a line in the sand and never cross it. We need to go back to basics.

Developing prudential policy measures to deal with the above narratives is therefore critical to address the major challenges facing the national economy of unemployment, tight liquidity, lack of capital formation and lack of confidence.

The current scenario in Zimbabwe, for example, where firms, especially those in the extractive sectors, and individuals are externalizing funds including export sales proceeds defies economic logic. This situation, which is not sustainable, requires the Bank to put in place prudential measures that aim to enforce discipline and transparency in the use of scarce financial resources, minimise economic haemorrhage from capital flight (or illicit financial flows), mitigate systemic risk, reduce business cycle volatility, increase liquidity, increase macroeconomic stability and enhance social welfare. Prudent measures are critical for economic transformation and to improve transparency and accountability by closing gaps and loopholes arising from inconsistencies and inadequate prudential measures.

Given the positive correlation between financial inclusion and economic developments, the Bank shall also unveil in this Statement policy interventions to promote financial inclusivity and proper functioning of the financial system. Financial inclusion or inclusive financing is the delivery of financial services at affordable costs to sectors of disadvantaged and low income segments of society. The United Nations defines the goals of financial inclusion as follows:

  1. Access at reasonable cost by all households to a full range of financial services, including savings or deposits, payment and transfer services, credit and insurance;
  2. Sound and safe institutions governed by clear regulation and industry performance standards;
  3. Financial and institutional sustainability to ensure continuity and certainty of investment; and
  4. Competition to ensure choice and affordability for consumers.

The Bank, together with numerous stakeholders, have put in place a financial inclusion strategy that we believe would go a long way to help people improve their lives.

Similarly, the Bank is continuing with efforts to address the cost of doing business in this country through reviewing the interest rate guidelines. The review is also intended to encourage the banking public to entrust banks with their funds and/or savings.

The recently publicised indigenisation policy frameworks constitute a significant milestone in the history of the country. The frameworks are business friendly. They are promotive of investment. They are flexible and clear to put into practice. This Statement shall provide direction on the implementation of the socially and economically desirable principle of the indigenisation and economic empowerment policy framework in as far as it relates to the financial sector and the applicability of the compliance and empowerment levy where applicable.

In view of the foregoing, the key purpose of this Monetary Policy Statement is to provide policy direction for transforming the national economy to a productive and disciplined one through;

  1. Prudential measures to deal with market indiscipline and imperfection known as the pecuniary externality in an open economy in order to curb the destabilisation effect of illicit financial flows, smuggling and or capital flight;
  2. Financial inclusion strategies to promote the availability of banking and payment services to the entire population without discrimination;
  3. Financial intermediation policies to promote the efficient allocation of financial resources;
  4. Enhancement of the multi-currency system to promote trading of the other currencies in the basket; and
  5. Provision of policy advice on the resuscitation of an Economic Crimes Court, revitalisation of agriculture and ease of doing business.

 

Next: Global economic developments

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Charles Rukuni
The Insider is a political and business bulletin about Zimbabwe, edited by Charles Rukuni. Founded in 1990, it was a printed 12-page subscription only newsletter until 2003 when Zimbabwe's hyper-inflation made it impossible to continue printing.

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