A focus on monetary policy - whatever Zimbabwe was doing, it's clearly not working

It has become a common theme among Zimbabwean politicians echoing the mantra “Zimbabwe is open for business”. This mantra is similarly reverberated in the most recent monetary policy statement of January 2018. The idea and concept is great but, is the country really or truly open for business? Let’s find potential clues/answers to this question by scrutinising the country’s recent monetary policy stance which in large part focused on the “Zimbabwe is open for business” theme.

The primary goal of monetary policy as set forth by the Reserve Bank of Zimbabwe (RBZ) Act [Chapter 22:15] is to promote stable prices and the proper functioning of the financial system. In its recent January 2018 monetary policy statement, the bank explains in more detail what opening up the economy for business entails. Surprisingly, the bank makes no serious mention or at the very least, acknowledge the negative influence of the parallel exchange market that seem to flourish given the salient cash shortages in the country.

In our view, as long as the parallel exchange market continues to flourish and the multiple exchange rate system exists - driven by the current cash shortages, it is difficult for any investor to want to work within the country. Given the differential exchange rates fuelling the speculative tendencies in the economy, the bank should tackle and address the underlying root causes of the cash shortages to help boost investor confidence. There is no economy that prosper on economic growth, balance of payment, low inflation and employment without liquidity.

The current Reserve Bank of Zimbabwe policies are detriment to the economic success of the country. It’s either that a change in policies or a change in personnel is required to make good progress. For instance, if one is to go in Harare’s central business district (CBD) to buy bond notes today, the bond notes are offered at a premium of about 22%, while the US$ is going for way over 60%. Worryingly, these notes look so brand new as if coming directly from the printing machine itself. The question is, where do these cash dealers get the money? And why is the central bank doing absolutely nothing about this? We all know Gresham's law – “bad money drives out good money” – a very basic and yet important economics principle which ought not to be forgotten. The bond notes should simply go. In an earlier article, we argued in favour of the introduction of the rand as a temporary currency solution, but we should also note that a return to the USD will also be a welcome move. What is important is to have a plan put in place to see the return of our own currency – i.e. a return to monetary policy independency so to speak.

With the renewed hope instilled in many Zimbabweans following the new cabinet appointments, one can only hope for the best. For instance, the appointment of Professor Mthuli Ncube as the new Finance Minister is arguable a positive and welcome move which should see Zimbabwe get back to the very basic economic fundamentals. However, it is imperative to note that, a precondition for economic progress during his tenure will be a total and absolute willingness by government to listen and support his policy initiatives. We anticipate a combination of some radical / very bold and not so bold policy initiatives looming on the horizon, which government would have to be supportive of and shun their “business as usual” approach of doing things.       

In our view, the free market should be allowed to prevail, regardless on whether the conditions are conducive for a “free to do business” environment, and not some government official in some office somewhere try to verbally convince people. It’s time to get to some serious work and re-store the proper legacy for Zimbabwe as once the “bread basket” of Africa.

Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect those of the organisations of affiliation.