Fidelis Munyoro Chief Reporter
The stern measures taken by the Government to tame inflation and price rises have been hailed by economists saying they will stabilise the economy, whose performance had been affected by unscrupulous individuals that were manipulating the currency.
With the Government insisting on tight fiscal discipline since the advent of the Second Republic and the Reserve Bank of Zimbabwe curbing growth of money supply, Zimbabwe should have low inflation. However the private sector, and especially those borrowing for speculation and non-productive uses, or arbitraging over time or between exchange rates, have been driving growth in money supply.
Some Government suppliers have also been fingered for inflating invoices or using local currency payments to mop up US dollars on the black market as they battled to preserve value.
The Government has fought back with enforcement of several measures including setting interest rates at 200 percent. This is set to continue for a while as the Monetary Police Committee confirmed last week, making speculative borrowing prohibitive.
Government has also launched gold coins that have already pulled $3,7 billion in local currency out of circulation.
The problem of Government contractors has been addressed by spacing payments and paying half in foreign currency, to pull the honest out of the black market, and by checking every single invoice before payment to ensuring the pricing offers both value for money and has not been calculated at black market rates, to dampen down those taking chances.
Experts who spoke to The Herald yesterday believe the latest Government responses to inflation driven by black-market exchange rate volatility would bear fruit.
Economist Mr Persistence Gwanyanya said the measures taken by the Ministry of Finance and Economic Development, and the Reserve Bank of Zimbabwe to stabilise the exchange rate and prices were beginning to pay off.
The local currency was strengthening and prices of some basic products are beginning to adjust downwards as the Zimbabwean dollar becomes scarcer as those feeding the market can no longer afford to borrow, have alternatives to preserve value and have come under intense scrutiny.
“While one can argue that it is too early to conclude, this time could be different. All parties agreed that growth cannot be sustained without stability and, therefore, should work towards attaining stability.
“Treasury committed to judicious management of cash flows whilst RBZ committed to conservative monetary policy stance. This saw the Ministry of Finance establishing the Value for Money Unit to deal with losses arising from procurement processes and payments for goods and services by Government.”
Mr Gwanyanya noted that all Government contracts would be reviewed to ensure that they fall within set parameters while the Liquidity Management Committee is now expected to be more active and minimise incidences of lump-sum payments to contractors and suppliers, which have been distabilising the currency.
The RBZ, Mr Gwanyanya said has committed on continuing with a tight monetary policy stance typified by high interest rates and use of gold coins to mop up liquidity and help with value preservation.
“At a bank rate of 200 percent, speculative borrowers and arbitrageurs have no space in the current environment,” he said.
“We have started to see this constituency liquidate their US dollar positions or repay their Zimbabwe dollar loans. On the other hand, the announcement effect of gold coins has seen a sharp increase in demand for the Zimbabwe dollar as a medium of exchange and its reduced volatility.”
He added: “Within a week or two of introduction of gold coins the parallel market rate strengthened from as low as US$1: ZWL850 to around US$1: ZWL750 and now we are hearing rates of US$1: ZWL600-ZWL650.”
Mr Gwanyanya also pointed out that there is consensus between Government and RBZ that there shall be no going back on the current stance no matter what. As already indicated the President of has weighed in with his full support.
Another veteran economic analyst Mr Chris Mugaga concurred saying, “We are seeing positive dividends regarding measures Government is taking to take on inflation.”
He said for the past 10 days, commodity prices have been coming down which is also evidence that some of the pricing was based on either mischief or profiteering.
“The move to raise interest rates to 200 percent is bearing fruit as well as the recent introduction of gold coins.”
Going forward, Mr Mugaga said the authorities simply needed to monitor the money supply trend and maintaining fiscal balance.
Founder and president of the Confederation of Zimbabwe Retailers, Zimbabwe Dr Denford Mutashu said results from the measures so far taken were pleasing as the inflation and extortionist prices are falling like a deck of cards.
“The measures are bearing fruit judging by how the exchange rate, inflation and price movement is contained from unwarranted escalations associated with the period before Government acted on money supply, Government suppliers and continued support towards productivity,” he said.
President Mnangagwa last week directed Treasury to send back all procurement invoices to ministries, Government departments and agencies for thorough revalidation that everything was above board before payments are effected to suppliers of goods and services to curb malpractices that have been destabilising the Zimbabwe dollar and fuelling inflation.
Some Government suppliers were suspected of activity that could be driving black market, resulting in the volatility in the exchange rate.
Accounting officers who fail to detect such pricing malpractices will now be “deemed criminally negligent” and held “personally liable” in terms of the Public Finance Management Act, the President writing in his weekly column for The Sunday Mail warned.
This would see suppliers who generate invoices based on black market exchange rates being blacklisted and banned from participating in public procurement processes.
President Mnangagwa said the measures were necessary as the public sector, which accounts for over 70 percent of purchases in the economy, had become an unwitting player in stoking the parallel exchange market.
“A random check has shown that such abusive pricing in respect of procurement of goods and services by the public sector is more of a rule than an exception,” he said.
“That way, our financial services have been destabilised, with the public sector being an unwitting player. I have now directed the Fiscal Ministry to send back all invoices from Government ministries, departments and agencies for thorough revalidation before payment.”
Going forward, President Mnangagwa said, Government will be a prudent procurer, as investigations have shown that the public sector’s role in stoking the black market was not intentional, but rather a “sin of omission”.
He singled out fuel suppliers and players in the tourism sector for taking advantage of public procurement loopholes to charge extortionate prices.