Inconsistent policies draining Zim business confidence: Hanke


Renowned American economist, Steve Hanke says Zimbabwe’s new fiscal and monetary measures have left the market in a state of confusion, and opined that the country’s annual inflation rate had topped 200%.


Finance minister Mthuli Ncube on October 1 raised tax on electronic transactions to 2% from a flat five cents per transaction as a way of levying the informal sector to raise cash for infrastructure, but business and the public objected, saying they would be paying for the government’s unrestrained spending.

A separation of accounts to foreign currency account (FCAs) and real time gross settlement (RTGS) and bond note accounts caused panic in the market as members of the public sought to rid themselves of the valueless currency by stockpiling goods.

“If the disastrous 2% money transfer tax announced by Zimbabwe’s Finance minister (Mthuli Ncube) wasn’t bad enough, now the government can’t get its story straight. The market is confused, and has lost all confidence in the government, bond notes and RTGS (Zimbabwe’s funny money),” Hanke, in a series of tweets on the microblogging platform Twitter, said on Saturday.

“Zimbabwe’s government says there is no need to panic. What a joke. Slapping an unexpected 2% tax on money transfers is a formula for panic. Zimbabwe’s government has blundered into a credibility deficit.”

Beverages make Delta echoed the sentiments of industry when it said latest policy pronouncements by the central bank and Treasury had forced the market to reject the surrogate bond note and transactions involving local RTGS funded accounts.

“Post the end of the reporting period, the fiscal and monetary policy pronouncements have been dampened by the currency policy statements, which seem to contradict the previous undertakings by the Reserve Bank of Zimbabwe on the multicurrency framework,” it said in a trading update for the half year to September 30 last week.

“In addition, the 2% transaction tax took both business and consumers by surprise, raising policy risks and undermining market confidence. Government and regulators are urged to engage stakeholders ahead of major policy pronouncements in order to maintain market confidence.”

Hanke said Zimbabwe’s inflation rate was much higher than the official 4,83%.

“Zimbabwe’s implied cumulative inflation rate measured for today, 10/13/18, is 224,7%,” he said.

Hanke uses a method based on the Purchasing Power Parity methodology to calculate annual inflation due to what he describes is a “data void” by the national statistics agency, ZimStat, to get accurate information.

The tweets by Hanke, a Professor of Applied Economics at the Johns Hopkins University, follwed an interview he had with BBC on Friday, in which he accused government of making inconsistent statements and policies.

“The government has had a lot of inconsistent statements and policies. They are issuing a couple of quasi currencies or not real money. Bond notes, they call them, and real time gross settlement, they are two forms of quasi money …
The problem is that they trade at massive discounts to the United States dollar, a 56% discount and they are supposed to be trading at par, so no one trusts the government or anything the government is doing,” he said.

“There has been a bit of positive rhetoric, but when you lift the hood and really look under the thing, nothing has changed very much. For example, they just indicated that the new minister of Finance (said) that the African Export (and) Import Bank was going to be covering or guaranteeing not only these bond notes, but these real time gross settlements issues by the government and the problem is that it is a fairly shady bank. No one knows what is going (on) and no one trusts the bank so it is a credibility problem.”

Local research firm, Equity Axis, said there was a clear disintegration of the monetary system, which by all measures appeared insurmountable in the short-term.

“There is no quick-fix to the crisis Zimbabwe faces and clearly, we are not in a growth phase, the adjusted returns or growth are negative in our view,” Equity Axis said.

“Government has a chance to partially float the exchange rate and debunk bond notes, protect the remaining value of the discounted RTGS in the system. This knock will be costly to everyone, but important for confidence building, stabilising the (foreign currency) markets and save the little forex in government coffers through reduced costly external stabilisation facilities.”