Worry over policies to arrest economic instability

Economists have expressed fear that some measures authorities are deploying to arrest economic instability could more or less be stop gap measures or trials that may fail to sustain the stability currently being enjoyed moving into the future.

Treasury announced a raft of measures aimed at taming exchange rate fluctuations and curb speculative behaviour including the suspension of payments to government contractors, agencies and departments.

Following Government interventions aimed at taming inflation and market indiscipline, inflation began to decelerate with monthly figures slowing from 30,7 percent in June to 25,6 percent in July and 12,4 percent in August.

Authorities have resolved to maintain a tight monetary policy stance in response to rising inflation and exchange rate instability.

In addition to that, of late the country has witnessed relative stability in the foreign currency exchange rate and if sustained, this may result in equilibrium between the WBWS interbank rate and the alternative market rate.

But speaking to Business Weekly, some economists are of the view that several businesses are now struggling to pay their workers and other obligations, including taxes.

They express uncertainty on how long the Government will go without supplies.

Economist, Victor Bhoroma, said that some of the measures are “more or less stop gap measures” while some are “trials” to see if they can achieve the desired results.

“If you look at the gold coins it is to see the impact that it will have on money supply and confidence in the economy.

“The measures to stop paying suppliers are not sustainable policies. The measures would have stifled money supply in the economy, but there is a clear lack of fundamentals to bring sustained economic stability in the market.

“One will obviously ask for how long the Government can be able to survive without supplies, at the same time how long can the central bank be able to sell gold coins that they are buying in foreign currency and sell them below the cost of buying gold from the miners,” he said.

He added that, while stability is there, it is stability brought by measures that are not sustainable, therefore, time will tell how long the stability is going to last.

Bhoroma said the market’s wish is for the stability to have been brought by market determined foreign exchange, serious reduction in money supply and

reforms to foreign exchange retention schemes such that the Reserve Bank of Zimbabwe (RBZ) does not print money to reimburse exporters.

“The RBZ should also look at expenditure cuts on non-core government expenditure, so obviously those are some of the sustained reforms that are needed that will bring in some independence or autonomy of the central bank monetary policy,” he said.

He noted that money supply should grow in line with economic growth. The total money that circulates in the economy, whether electronic or physical, should not exceed 15 percent of GDP, he said.

Bhoroma suggested that the government should use public-private sector partnerships (PPPs) in infrastructure projects instead of using tax revenue.

Investment analyst, Enock Rukarwa, admitted that the government has ushered in the right mix of measures to anchor exchange rate volatility and inflationary pressures, but strategically what is now key is the sustainability of the measures going forward. Regularly, such measures should be reviewed with a view to achieve completeness.

“Religious application of the working formulae should be adhered to, refining weakening joints to guard against diminishing marginal returns of the policy use,” he said.

While inflation and exchange rates volatility has slowed, selected goods and services have also reduced pricing.

Another economist, Vince Museve, said the stability is mainly because of the government stopping payments to its suppliers.

“This cannot continue and until strict controls are in place to ensure that monies are not traded on the parallel market and there is forex available through the banking system the risk of inflationary pressures is ever present,” he said.

According to Persistence Gwanyanya, an economist, as the ZWL moves towards stability, following a raft of measures by RBZ and Treasury, the Government is seeking to increase demand for the ZWL as a way of achieving durable stability.

He said that this is necessary to minimise the risk of dollarisation as the ZWL supply remains tight and the appetite for ZWL by the Government, who commands more than 70 percent of the market, increases.

“Business should-sooner rather than later- realise that the honeymoon is over and revise down their prices, failure to do that will see them penalised by demand,” he said.

Gwanyanya said that business needs to go back to basics where productivity, not speculation or arbitrage, is key.

He said that the government is determined to support the ZWL and make it a currency of preference, hence there should be no going back on the current stability measures.-ebusinessweekly