TREASURY and the Reserve Bank of Zimbabwe (RBZ) need to closely monitor huge foreign currency balances in the economy, which have been boosted by record exports, to avoid destabilising the economy and reversing the gains that have been made so far, President Mnangagwa has said.
Zimbabwe generated a record US$11,6 billion in foreign currency receipts last year and had a current account surplus of more than US$300 million.
As a result, more than 70 percent of local transactions are now conducted in US dollars.
In his weekly column in this publication, President Mnangagwa said both fiscal and monetary authorities must be wary of the current trends in the market to ensure that they “do not upset the apple-cart”.
“Amidst all this good news, there are issues and concerns which we must continue to keep an eye on, and even address as an economy. First, the more than US$300m positive balance between our foreign exchange receipts and our external payment commitments must continue to be monitored so they do not upset the applecart,” said the President.
“I am aware that over 70 percent of domestic transactions are in US dollars and cash-based.
“That, in part, explains where this surplus is, and what it is doing in the economy. I urge both the fiscal and monetary authorities to jointly ensure this huge amount remains in lawful circulation and positively used at all times. It should never live and operate in the twilight of national laws and national transactions.”
As the bulk of the transactions are now in foreign currency, President Mnangagwa said, there might be need to relook the method that is used to calculate inflation to avoid stoking up negative expectations on prices.
“Second, as the Monetary Policy Statement admits, a mere 30 percent of national transactions are reckoned in local currency. Yet our conceptualisation and reading of inflation tends to be based on this small segment in the total matrix of national economic activity,” he said.
“This distortion unhelpfully overlooks what happens to 70 percent of transactions in the economy, all of them done in United States dollars! I urge both our fiscal and monetary authorities to re-imagine this one critical area so we do not continue to stoke up negative expectations on inflation, which are not justified by realities of transaction in the economy. Would a blended reading of inflation not be far better and representative in guiding the whole economy, behaviours and expectations around our economy?”
He also said every gain made in stabilising and growing the economy should translate into a better operating environment for businesses, and improved welfare for Zimbabweans.
“The exchange rate has largely stabilised, putting aside temporary instability late last year triggered by payment to our farmers.
“That we are on course, and that the outlook is sustainably good, showed by way key relaxation measures and concessions the Governor made to businesses, and to the general public. That is as it should be. Every gain we make as an economy must translate to a better operating environment for businesses, and to improved welfare thresholds for the generality of our people. The positive balance must grow the economy.”
There was need, he added, to make Zimbabwe’s economy “a people’s economy”, whose growth should be felt by all.
“Overall, we need and have to re-imagine our economy as it transforms for the better,” he said.
“More important, we must reckon with the fact that it is no longer a racial enclave economy it used to be under settler colonialism; it is now a people’s economy whose real scope and value must aggregate the gainful activities of its entire citizenry.” – Sunday Mail
