1 March 2019

Zimbabwe: Brace for Turbulent Times Ahead, Business Warned

Photo: Jerry Chifamba/AllAfrica
Harare (file photo).

Former Confederation of Zimbabwe Industries president Busisa Moyo (pictured) says industry should brace for turbulent times as price instability is likely to persist on the market.

Commenting on the Monetary Policy Statement (MPS) announced last week, Moyo said industry will have to re-adjust current prices with the new currency, RTGS dollars, a move that is likely to rattle the market within the short-term.

"The next three to four months will be somewhat turbulent as the incomes and prices explore to find a new price level in RTGS dollars," Moyo said. He added that the Reserve Bank of Zimbabwe (RBZ) will have to be ready with mitigatory policies to stabilise the market.

Moyo said employers will also have to adjust salaries to the current cost of living as labour is likely to ratchet up pressure on employers to raise wages.

"It depends on the goodwill of all sectors, but business is prepared to play its part in ensuring adequate supply of commodities and stable prices and sensitivity to the plight of workers in light of cost pressures and demands that may come up in the next three to four months. A functional social contract will assist in supporting these measures," Moyo said.

He added that the foreign currency committee should exercise discretion in the issuance of letters of credit.

"Business also has in particular those sectors supported by letters of credit and the allocation committee have to exercise sobriety and really come to the party so that RBZ efforts trickle down to ordinary citizens and consumers," Moyo said.

The new managed floating exchange rate system will see the RTGS dollar -- a mix of electronic balances, bond notes and coins -- being traded on the inter-bank market. In a managed floating exchange rate system, a central bank intervenes to stabi- lise a country's currency.

"We must understand our context up to (Wednesday last week); the environment was plagued with an acute shortage of currency in the formal market, a surge in parallel market activity, price distortions, inability to report meaningfully in line with GAAP and a myriad of other challenges caused by electronic dollars (RTGS dollars). The RTGS money creation was caused by fiscal deficits and an unabated desire for imports which to date amount to close to US$50 billion. The MPS addressed these issues adequately by unpegging the bond, RTGS and cellular wallet balances and allowing it to trade based on market forces," said Moyo.

Since the MPS announcement last week, rates on the parallel market have remained stable with traders quoting a rate around US$1:3,8$RTGS.

Annual inflation last month rose to 56,9%, the highest record in a decade, but Mangudya says the rise in prices is fuelled by the exchange rate premium on the parallel market that he has set out to shut down.

However, Colls Ndlovu, a former South African Reserve Bank economic analyst, predicted a failure of the RBZ's current MPS, saying the central bank was reading from the 2008 playbook which led to the demonetisation of the Zimbabwean dollar at that time.

Other analysts say the RBZ has taken the easy way out, which could have a boomerang effect on the central bank.

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