‘Govt expenditure, TBs issuance to blame for price hikes’

ECONOMIC analysts have blamed foreign currency shortages and uncontrolled government expenditure through the issuance of Treasury Bills (TBs) for fuelling the current wave of price hikes on basic commodities.

BY FIDELITY MHLANGA

For the past few months, the prices of most consumables have been skyrocketing, leaving consumers in a lurch.
Industry, Commerce and Enterprise Development minister Mike Bimha has since Monday been holding marathon meetings with various producers in a bid to force them to stop hiking prices willy-nilly.

On Tuesday, President Emmerson Mnangagwa read the riot act on suppliers and retailers fond of profiteering and warned that government would soon clamp down on them.

But industry experts and analysts who spoke to NewsDay said the unavailability of foreign currency in the formal banking channel had forced most companies to source the United States dollars from the parallel market at a premium in order to continue importing goods.

“A lot has to do with currency. It is all because of the unavailability of currency. As we noted in our manufacturing survey that only 50% of companies were getting currency from the formal banking system, that is driving companies to get access to currency from middlemen who put a mark-up on it. Obviously, this premium will be passed on to consumers through price increases,” Confederation of Zimbabwe Industries (CZI) president Sifelani Jabangwe said.

He said the closure of the tobacco season, which oils the country’s nostro accounts, had aggravated the situation.

“Another thing is that we have too much real time gross settlement (RTGS) balances chasing a few dollars. This has been worsened by the closure of the tobacco marketing season. The tobacco season replenishes the nostro accounts and that is how we have access to fund the importation of raw materials and other imports. We need fresh money coming in the economy to improve our balance of payments. That is why engagement with the international community is important,” he added.

Econometer Global Capital economist Tinashe Kaduwo weighed in saying government’s continued borrowing through TBs and Reserve Bank of Zimbabwe (RBZ) overdraft was no different to money printing and likely to fuel price hikes.

“Price movements can be used to ascertain levels of confidence in the economy. Following recent political developments and [Finance and Economic Planning minister Patrick] Chinamasa’s reform budget, one would expect prices to stabilise or even trend lower. However, the spike indicates the direction of sentiments in the economy.

What’s key to normalise prices is to improve levels of confidence through implementation of key reforms that attract capital and production. Correction of monetary imbalances caused by government’s excessive spending is also necessary. Government’s continued borrowing through TBs and Reserve Bank of Zimbabwe (RBZ) overdraft is no different to money printing,” he said.

The continued issuance of TBs is causing a mismatch between local RTGS balances and nostro accounts balances, thereby breeding a multiple pricing system. In July, RBZ governor John Mangudya told delegates at the Institute of Chartered Accountants of Zimbabwe winter school that money was being created through overdrafts.

“I see the CBZ and ZB CEOs are here. So, if those banks provide you with a $1 000 loan today (for example), we are creating money in Zimbabwe, but not creating counterpart money from foreign currency. By creating money by overdraft it means that we have created more local dollars without a corresponding increase in foreign currency, so there is a mismatch. They call it ‘dead on arrival’. What it means is the local dollars are more than the foreign dollars. That is why I am saying to banks do not give too many loans to the business community and everyone because you are putting too much pressure on foreign currency. Now that’s the first creation of money,” he said then.

To tackle this predicament, Kaduwo is of the view that government should move with speed to implement measures to tame over expenditure before the economy recedes into the hyper inflationary era.

“Government should fast track implementation of some of the measures proposed in the budget as the economy is in similar quagmire with the hyper inflationary era where unbridled spending led to record level money printing and eventually the collapse of the monetary system. This is gross consumer welfare loss, which is also exacerbated by the continued cash crisis. I foresee a bleak festive holiday as consumers feel the pain of rising basic prices,” he said.

Another economist Clemence Machadu said price increases were a function of the costs of production and any strategy by policymakers must confront the cost drivers.

“Policymakers and the powers that be should get down to brass tacks and start addressing the fundamentals and not symptoms of the problem. Price increases are a function of costs of production and any strategy that does not directly confront costs is mundane. So we need to address the costs at which producers are accessing hard currency, as well as raw materials, while ensuring that we foster raw materials import substitution in order to ease pressure on the trade deficit,” he said.

In addition, Machadu said government should aggressively deal with the ease-of-doing business environment through policy and legal reforms, in order to attract more foreign investment and funds for industry retooling.

Confederation of Zimbabwe Retailers (CZR) president Denford Mutashu said he was hopeful that Bimha’s intervention was going to ensure price stability.

“The Minister of Industry, Commerce and Enterprise development, Hon Dr Mike Bimha, has spelt out the roadmap on how government is tackling the issue of price increases and CZR was part of the deliberations, hence, it’s support to the current efforts on price stabilisation. The National Competitiveness Commission is also seized with the matter while dialogue continues amongst all relevant stakeholders,” he said.

Consumer Council of Zimbabwe executive director Rosemary Siyachitema said there was need to put into place a consumer protection act to cushion consumers from wanton price hikes.

“There is need to urgently put in place a consumer protection act so that consumer also have recourse on what is happening in the market. At the moment they don’t have such a platform,” she said.

13 Comments

  1. shame in our quest for solutions we have created more problems u cant coup an economy late alone rig it

  2. Comment…so bond is the problem according to you experts ,worry not we will remove it then does it improve forex inflow in the country ?

    1. No RTGS/ bank ‘fake’ money is the problem

    2. If they do that, there’s no money circulation at all in the country. They (we) have nothing to buy US dollars with.

  3. Who has caused the foreign currency shortages and how??

    1. Erm… ZANU. Greedy, corrupt, selfish and downright ignorant and stupid.

  4. Removing the bond note also removes the reason for currency trading on the black market. Everyone will buy using the U S dollars they have, just like what was happening between February 2009 and May 2016 when we did not have the rogue surrogate currency. Throughout much of 2009 the greater number of civil servants and soldiers were earning one hundred dollars per month and we had no problem whatsoever. Even companies were not complaining about foreign currency shortages because each one of them got it directly from the purchaser. We did not even have a limit on withdrawals. The attempt to restrict the availability of hard currency to the president’s inner circle by introducing the bond note created all these head-aches in the economic system.
    At the same time price hiking to hide transfer pricing should never be ruled out as business people keep their exports’ moneys abroad and compensate local operations by charging higher the local consumer. This is what the quoted commentators do not want to talk about; in addition to the externalised money that government is only now trying to sort out. This externalisation did not start this year.

  5. “US $ harisi rekutenga pamusika, its for important national transactions. Afunga kutenga mazhanje US $, madora US $, aiwa hatichadi. We experimented with bond coins tikaona kuti zvinoita, saka now takuunza riribond note…” I heard this speech from someone in a manner yekusvotesa like, not so long ago.

  6. the inner cirlce does not feel the pain its only us thee power who suffer. The business people they put all the overheads of their business to us the poor. All this noise does the not benefit the poor in the street and in rural areas. Our problem is Zanu pf governance which does not have direction for the past 37 years. Printing money and treasury bills to support their propaganda. Presidential input scheme , Command agriculture now command Livestock it does not work like that where do they get the money from to support these programmes when there is no money . Zanu pf polices are there to please the peasants but at the same time the peasants do not benefit.

  7. Prophet you correct.Bond note is the source of 80% of our problems regarding Circular Flow of Income.The gvt is borrowing excessively because the bondnote is local including the figures that are created by RBZ.If RBZ was optimizing the bond note to US then fine and banks can lend to whoever as long as they have the bond that is backed by Afriexim bank in hard currency.But of course there is now serious doubt if this is the case on gurruntees.Remove the Bondnote or Back it up.Simple

  8. foreign currency is not for everyone to use , its for strategic purchases that have been authorized, dump the US and follow common sense economic policies, methods that have been tried and tested elsewhere and proven workable,
    Muchajaira henyu economics dzana Gono dzakatisvitsepi , green bomber haisi mari , tinoda kuguta hatidi manyepo .Iyi nyika hamumboigadzira mega , regai humbimbindoga mupe munhu akahwina ma elections mu 2008 mofambawo muinaye , muri mega dololo

    1. In any normal country, foreign currency is available for anyone to use. When an economy is running properly, the in and the out remain pretty stable, at all levels of society.

  9. So… basically, the only substantial export Zimbabwe has, these days, is something that is responsible for the leading preventable source of lung cancer in the world?

    Wow. No more to say, really.

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