Opinion by Nigel Pfunde
THE galloping inflation and spike in the black market rates that were triggered by the introduction of new notes last week are symptomatic of an economy suffering from a seemingly incurable disease worsened by what seems to be a policy discord between the monetary and fiscal authorities.
Under normal circumstances, the governor John Mangudya is supposed to be the custodian of the monetary policy while the finance minister Mthuli Ncube is supposed to show his forte on the fiscal side of the economy.
Simply put, the main difference is that monetary policy uses interest rates set by Mangudya, while fiscal policy involves changing government spending and taxes to influence the level of aggregate demand.
However, in our scenario it seems ever since Ncube’s glamorous appointment as minister, the former economics professor has adopted his bookish knowledge and overstepped his mandate.
There is a thin line between monetary and fiscal policies!
To begin with, prior to Ncube’s appointment, Mangudya had his own recipe of striving to achieve a nutritious economy.
His ingredients included productivity and introduction of a surrogate currency in the form of bond notes which were at parity with the United States dollar.
His idea was to gradually move towards local currency once we had backup and confidence.
This was not Ncube’s idea as evidenced by his immediate policies soon after appointment where he quickly re-introduced the Zim dollar.
Ncube came in with a big bang and appeared as a ‘poster boy’ making headlines in every serious local publication.
The professor he is, he made instant stardom when he quoted Gresham’s law, a monetary principle which states : “bad money drives out good”.
Pursuant of his plan to usurp the role of the monetary authority, he appointed the Monetary Policy Committee (MPC), where he cherry picked nine members.
The composition of the MPC has some reasonably qualified people to offer sound advice to the governor and a bigger chunk of individuals who were chosen on basis of personal relations rather than meritocracy.
Doug Munatsi easily comes to mind, the banker has been close to Ncube since his Barbican days and whispers that he wanted him as governor made deafening noise in the corridors- though such ambitions could not be proven!
The MPC members are; SA-based actuary Marjorie Ngwenya, the first non-British – and the first person under age 40 – to have served as president of the UK’s Institute and Faculty of Actuaries, Kumbirai Katsande, a former president of the Confederation of Zimbabwe Industries and ex-MD at Nestlé Zimbabwe, his long time friend and speculative banker Douglas Munatsi, former CEO of BancABC, a leading farmer, Theresa Moyo, a professor of Economics who has taught at UZ and the University of Limpopo, Eddie Cross, a former opposition MP who has both praised and criticised government – he has on several occasions in the past pointed his lethal sword at Mangudya – and Ashok Chakravarti, economics professor at UZ who also already advises Treasury.
MPCs are not peculiar to Zimbabwe, there are used in many countries around the world but our current laws are vague to spell out if Mtuli has the mandate to set up such a committee. It appears the role of the MPC is not clearly defined as some members seem to be oblivious of the fact that the MPC’s task is limited to advising not foisting policies on the RBZ, which, by the law, is supposed to be an independent entity.
Although I could not find any tangible evidence that the MPC is arm-twisting the Governor, the improtu policy direction shift is telling.
A key tenet in policy-making is that monetary authorities are supposed to be independent.
Ncube based his appointment of the MPC on the reasoning that it was supposed to breed part of measures to help bring credibility to policy as the economy pushes towards its own currency.
The MPC was appointed almost a year after Ncube first mooted the plan under the Transitional Stabilisation Programme (TSP), a raft of policy reforms he announced soon after his appointment.
Among other its vague roles, the committee benchmarks interest rates and begin inflation targeting.
To this day, the terms of reference of the MPC are not clarified hence making it a Herculean task to find a yardstick to measure its effectiveness (or lack thereof).
So far, the committee has dismally failed to restore confidence in monetary policy, which has been on a downward spiral.
In February, RBZ abandoned the 1:1 peg on the exchange rate, allowing the local currency to partially float. Interest rates were raised to 50%. In June, Ncube abandoned the multicurrency regime, in place since 2009, controversially banning the use of foreign currency for local transactions.
In an attempt to steer the monetary policy towards the full reintroduction of a new currency, the MTC recommended the printing of new currency and the disastrous results are written on the wall.
Black Market rates rose to at least 1:60 yet salaries remained stagnant transferring the burden to the masses.
Another example of interference by the minister is the formation of the so called Currency Stabilisation taskforce is purportedly spearheaded by RBZ , Ncube’s ministry and members of the Presidential Advisory Council.
The taskforce is mandated to include foreign exchange management, introduction of managed exchange rate system as well as support measures relating to money supply, liquidity management and interest rates.
The lack of respect for the next person’s jurisdiction and the scramble for the pot is what is causing a poisonous meal in the Zimbabwean economy.
As the old adage goes, ‘too many cooks spoil the broth’.
There is need for monetary and fiscal authorities to stay in their lane and drive the economy forward not the retrogressive relationship that seemingly exist between the two arms.
The latest US$1 million COVID-19 tender scandal also exposes the lack of accountability bu the Finance ministry where a full minister reportedly tells cabinet that he okayed a tender on basis that he assumed the company involved was associated with his principal!
