Michael Tome Business Reporter
Some of the challenges the country is facing are side effects of macro-economic adjustments employed by monetary and fiscal authorities last year, which did not receive external support, Reserve Bank of Zimbabwe (RBZ) governor Dr John Mangudya has said.
Dr Mangudya revealed this while addressing an Institute of Directors Zimbabwe meeting in Harare yesterday, which was running under the theme: “Unpacking the Monetary Policy Committee decisions and policies.”
The central bank governor said the side effects of macro-economic transformation have been exacerbated by the absence of a bailout plan, adding other countries that went through similar experiences such as Egypt, Angola in Africa and Greece in Europe, instituted reforms that were well-funded.
Dr Mangudya said the fiscal and monetary transformations were necessary as the country needed to rebalance its economy.
Zimbabwe is emerging from a year that was characterised by government’s fiscal consolidation and foreign currency liberalisation.
Fiscal consolidation saw the country reducing the range of subsidised goods and services in the economy at the same time introduced floating of foreign currency that he acknowledged led to a spiral of exchange rate after encountering low confidence on the market.
Resultantly, the instituted reforms saw spiralling inflation and an increased rate of social ills (poverty) in the year, a development Dr Mangudya said was largely expected due to the absence of a bailout.
Dr Mangudya, however, noted that the central bank’s agenda this year is centred mainly on reducing and stabilising the exchange rate and inflation.
“We used shock therapy approach to rebalance the economy, we are therefore going through cost of adjustment as a country, in our case we plunged into this (transformation) by our self as we relied on our own resources as compared to some countries that received bailout,” said Dr Mangudya.
Going forward, the governor indicated that he expects February inflation to be around 8 percent with an overall aim of having one-digit inflation by year end.
“This year’s intention is to stabilise the economy mainly to stabilise shocks that came in the aftermath of transformation,” he added.
On the element of de-dollarisation the central bank chief alluded that it was not an overnight process but takes several years.
“De-dollarisation is a gradual and painful process, we have countries like Belarus which are now in the eighth year of de-dollarisation process, so don’t expect our de-dollarisation to be perfect yet,” said the central bank chief.
He also highlighted that more country’s efforts should be directed towards improving productivity as the country had immense potential to produce but the actual yield on the ground remains very low.
Zimbabwe produced 320 000 tonnes of maize in 2018, which translates to one million tonne cover by imports, while 90 000 tonnes of wheat were produced against a monthly demand of 33 000 tonnes.
Critically, the country is losing substantial amount of foreign currency to the aforementioned basic requirements coupled with $10 million expended on monthly electricity imports.