24 March 2014

Zimbabwe: Welcome Governor, Your Work Is Cut Out

Photo: The Herald
New Reserve Bank of Zimbabwe Governor Dr John Panonetsa Mangudya


New Reserve Bank of Zimbabwe Governor Dr John Mangudya has his work cut out.

Indeed, congratulations are in order. He is an experienced and astute banker who should be up to the task.Dr Mangudya assumes office at a time the economy requires congruency between its fiscal and monetary policies.

The absence of a substantive boss of the RBZ for four months had its adverse effects but we commend Acting Governor Dr Charity Dhliwayo for keeping the ship steady. She fought a good fight.

Dr Mangudya's track record as CBZ Holdings chief executive speaks volumes of his capabilities. But he should be the first to admit that there is not much time for a party or for acclimatisation.

He should hit the ground running when he assumes office on May 1.

The central bank has not been operating optimally due to attempts to block its recapitalisation during the inclusive Government years, and its consequent failure to play the lender of last resort role. The multiple currency system also constrained its ability to control money supply within the context of economic stabilisation.

However, some of these challenges are being addressed, as intimated by Finance Minister Patrick Chinamasa.

A solid and well-equipped central bank is what we need. Among Dr Mangudya's priorities will be addressing the liquidity crunch, bringing stability and liquidity to the financial sector, boosting depositor confidence and dealing with banks that are failing to raise required capital.

The economy needs to attract lines of credit, FDI and local financing to oil the productive sectors. This demands that Dr Mangudya introduce strategies that complement fiscal policies. He needs to think outside the box.

In the context of Zim-Asset, it is among his duties to help raise required funding for effective implementation of the blueprint. Not much money is coming from outside. This means home-grown solutions are the pillar on which economic rejuvenation will be built.

Zimbabwe requires a stable financial sector that can assume its intermediary role in the economy. Agriculture, manufacturing, SMEs, youth, women and other productive sectors require a viable financial sector.

This has not been happening to expected levels because many banks are failing to attract credit lines others are on fire as they are inadequately capitalised.

The resumption of the lender of last resort function should cushion banks that need back-up, thus restoring stability. The overnight accommodation rate thereof should give guidelines to banks as regards the interest rate they should charge.

The war these institutions and the central bank have over the directive that the former seek approval before raising interest rates will need to be attended to immediately.

Dr Mangudya will also be expected to deal with banks' capitalisation.

The current US$20 million capital requirements for commercial and merchant banks remains heavy for some, which means he might have to force mergers as he hand-holds affected institutions, or -- in the worst case scenario -- allow closures as intimated by Dr Dhliwayo in her Monetary Policy Statement in January.

It would be a bad first day in the office for the new RBZ chief to start by announcing bank failures but, then again, he may have a few options. Under-invoicing and other tricks employed by exporters in mining and other sectors will need to be plugged.

The capital markets are slowly coming alive and we should see Dr Mangudya encouraging more activity there. The launch of Treasury Bills, bonds and other instruments should do the trick.

Dr Mangudya's plate is already full and we can only wish him well as the nation pins its hopes on his acumen.

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