Exchange rate conundrum: Can Mangudya deliver stability before his exit?

The Reserve Bank of Zimbabwe Governor Dr John Mangudya, promises a “solution” to the country’s long-standing currency woes in his upcoming Monetary Policy Statement (MPS). With his term ending in April this year, Mangudya claims he will leave a legacy of a stable exchange rate, marking a dramatic departure from past failed attempts.

However, skepticism swirls amidst Zimbabwe’s history of volatile policies and persistent currency and exchange rate struggles.

Mangudya acknowledges past failures, stating previous measures merely addressed symptoms, not root causes.

He emphasises extensive consultations and “consensus” as key differentiators, fostering “ownership” and confidence in the new approach.

“As Treasury, as the central bank and as the government of Zimbabwe, we are convinced what we are working on is what the Zimbabwean market required and we have found the solution to the instability of the exchange rate which has been bothering us for a long time,” said Mangudya.

Details, however, remain elusive, prompting cautious optimism from analysts.

Previous policies aimed at curbing inflation often yielded unintended consequences. High interest rates, for instance, stifled investment and economic growth.

Currency auctions faced black market competition, while foreign exchange retention requirements burdened exporters. Can this new approach avoid similar pitfalls?

“Its consolidated input from various sources, because we have widely consulted, because its a widely shared view and for that reason, its success rate is very high because there is ownership of the product,” promises Mangudya.

Businesses cautiously welcome the promise of stability. Predictable exchange rates are crucial for planning, pricing and accessing essential imports. Foreign currency challenges, impact product availability and profitability. A stable currency could be a game-changer.

However, past pronouncements have fallen short. In 2020, Mangudya predicted single-digit inflation by year-end, a target far from reality.

This fosters skepticism, demanding concrete details and transparent implementation in the upcoming MPS.

Success hinges on addressing fundamental issues. Boosting exports, diversifying the economy, and attracting foreign investment are crucial.

Taming Government spending and tackling corruption are equally vital. Without these, even the most meticulously crafted policy could face headwinds, said Walter Mandeya, an analyst with Trigrams Investment.

Mangudya’s bold claims raise the stakes. While the promise of a stable currency is alluring, businesses and analysts await the specifics with a mix of hope and skepticism.

Only time, and the effectiveness of the proposed measures, will tell if Mangudya’s legacy will be one of lasting stability or another chapter in Zimbabwe’s ongoing currency saga.-ebusinessweekly