Monetary policy fuels economic strife: Business

The fiscal and monetary measures announced on Monday will likely increase the cost of business and cause labour unrest, as workers seek higher wages to cushion themselves against the rising cost of living, business leaders said, while the opposition warned the drastic measures would further ruin the economy.

BY OBEY MANAYITI

Finance minister Mthuli Ncube and Reserve Bank of Zimbabwe governor John Mangudya on Monday announced a raft of measures that will see, from October 15, banks allowing depositors to hold separate accounts for United States dollars for the first time since January 2009 when the country adopted the US dollar.

The move by the authorities is an admission that the money Zimbabweans have in their accounts is a virtual local currency that will trade in electronic transfers and bond notes.

Ncube also raised taxation on electronic transactions, which since January 2003 have been charged at five cents per transaction, to two cents for every dollar transferred electronically as part of efforts to start taxing the informal sector.

The measures are just a start, with Ncube expected to provide details of his two-year economic plan on Friday, likely to include tougher measures, as he bids to stop the economy’s slide since the end of the government of national unity in 2013.

Confederation of Zimbabwe Industries (CZI) president Sifelani Jabangwe said although the measures were positive, the 2% mobile money transfer tax measure must have a cap.

“One thing that we expected as business is to deal with big pains such as access to foreign currency and I think that will be addressed. The separation of nostro accounts and RTGS [real time gross settlement] accounts helps those that need to access their money in USD. The new measure is like the protection of private property because those who earned (the USD) will access it. This is a very big step, which is positive,” he said.

“The move to introduce the 2% on every dollar is good because it expands the tax bracket, but there is a side which I don’t think they noticed, that for business, it is costly.
What we need to do is to put a cap on that because suppose I’m paying salaries, I will be charged or when buying goods. Therefore, if you don’t put a cap, it will increase the cost of doing business,” Jabangwe added.

Zimbabwe National Chamber of Commerce chief executive Christopher Mugaga said the measure risked endangering the “Zimbabwe is open for business” mantra.

“It’s a policy statement where the governor is trying to deal with problems which are real, but cannot confront them for a number of reasons. Some of them are political and some are social because you can see the tone of the central bank governor in his monetary policy acknowledging that we need to quarantine the Nostro FCA and RTGS FCA,” Mugaga said.

“By separating them, he is acknowledging that we have bad money and good money. But by maintaining a 1:1 parity, he is wary of the political implications of trying to separate them because that might cause a public revolt.”

He said workers would likely push for salary increments, given that the value of their salaries would also fall.

“Prices for goods and services will go up, which increases the cost of living in this country,” Mugaga said.

“By quarantining these accounts, he is trying to be real economically, but he is hamstrung politically. There is also the risk that this monetary policy will deepen the parallel market.”

But University of Zimbabwe lecturer and economist Ashok Chakravarti described the measures as a step in the right direction.

“You have to realise that we are in a deep hole and it’s going to take some time to come out of it,” he said.

“This is one policy statement and there is a lot of work to be done and if you look at the monetary and fiscal policies, it’s a step in the right direction because the solution is going to take some time, but, at least, in the past, we were going in the wrong direction. Isn’t it better where we are in a situation where we are trying to climb from the hole slowly?

“I think that is the problem with a lot of people who are negative; they are not comparing it with what was happening last year or time before that when things were getting worse,” Chakravarti said.

The MDC Alliance described the fiscal measures and monetary policy statement as “murderous and cruel,” adding that more taxes and attempts to de-dollarise the economy would only further worsen the situation.

MDC Alliance deputy national chair and former Finance minister Tendai Biti said the new measures were likely to fail and worsen the situation.

He warned of a looming shortage of commodities.

“These measures are a disaster being crafted by absolutely clueless people and I think Mthuli is going to be worse than (Patrick) Chinamasa,” Biti told NewsDay yesterday.

“We have got an economy which has been run on the basis of a USD, so once you de-dollarise and effectively bring back the Zimbabwe dollar when the economy is not producing, you are effectively guaranteeing the return of shortages, the return of hyperinflation and so what they did yesterday is to fast-track us back to 2007 and 2008 because the core challenge of the economy is absence of production.

“Those measures actually stifle production and they are going to make the cost of the USD go up, therefore, crippling imports into the country.”

Biti urged people to reject the 2% charge on transacting, saying it serves no purpose to continue burdening the public with taxes when the economy is in recession.

“We are already overtaxed and Zimbabwe is one of the countries that are overtaxed in the African continent. Taxes are 30% of our GDP [gross domestic product] when the average African country is 15%. By raising taxes with the hope that you can extract water from a stone is cruel, criminal, senseless and madness,” Biti said.

“Secondly, it’s cruel and murderous that you steal people’s USDs and people resort to alternative methods of payments, in particular EcoCash, and you go on to impose a premium on that. That is criminal, heartless and that is a major own goal.”

Another MDC Alliance official Tapiwa Mashakada weighed in, claiming Zimbabwe had lost an opportunity to reform.

“The elephant in the living room is the bond note, which is bad money chasing good money. The governor blew the opportunity to get rid of this surrogate currency and, as a result, the three-tier pricing system will continue,” he said.

25 Comments

  1. Comment…mdc ppl are fool and ignorant they don’t economics bond notes is better than rtgs money and rtgs are the one chasing usd becoz they are more than 5billion in circulation compared to 400 million bond notes .let us be positive and support our gvt

    1. you are the fool……………uchafa nenzara

    2. useless reasoning, who created the fake figures of the rtgs in the first place. fokofu nonsense

      1. ZANU-PF wont be out of Power easily…..the Party is fighting the Regime Change Agenda…

  2. Hands up who thinks the govt will not nibble away at FCA’s? It will be difficult to keep their hands off hard currency sitting in local banks.

  3. Claudius, Claudius slow down on emotions. Avoid using such words as fools and ignorant. The “MDC ppl” are expressing their opinions and there is nothing wrong with that. You can also express your opinion without insulting others. Noone knows for sure, including the minister aa well as the RBZ governor on whether these measures are going to work or not. They have not been tested before. Let us just hope that these measures are going to work without forcing others to be positive about these measures.

  4. Stupid Claudius, when bond notes were forced on Zimbabweans you were celebrating saying its a good move. Now they admit their failure and are stealing people ‘s savings and imposing more taxes on mobile transactions, overburdening already suffering people and you say a positive move, which positive move by the Zanu thieves? They are trying to steal people ‘s money so that they will buy state of the art campaign vehicles and for chiefs and war vets. Shut up. You cant rig the economy.

  5. Vanhu vakaaita sembudzi inonzi Claudius hapana zvinofungwa. Zanu chainoziva kuba chete. Vakaba ma elections vakafunga kuti kutonga inyore. Vaitenga mazimotokari ne mari yavakaba ku government vaingabhadhari tax pa border. zvipatara hazvina mushonga kana ma ambulance asi vakatenga mota dzinodhura vachishandisa poor tax payer’s money. nhasi vaa kuda kuita tax the poor kuti vazoba futi. sei vasingatinyari. kubvira rini vachishungurudza vana ve Zimbabwe. Tava chiseko mu Africa pamusaka pe Zanu. MANGUDYA achiuya akatinyepera kuti bond ne USD i 1 as to 1, vakanyudza mari dzevanhu, nhasi vaa kumuka vachiti taa kuvhura imwe account ye ma FCA. vaivhura vanhu vakaisa mari dzavo voiba zvekare voti zvafanana. Mbavha imbavha. Manyangira yawona. Zimbabwe haina dambudziko re mari yekunze, inedambudziko re humbavyha ne kunyepa, umbavha hwekubira sarudzo , mavendor, Mazimbabweans ne ma investor through kusavimbika pama policy. Zimbabwe chero ikapiwa $20 billion haishandi kana munyika medu vanhu vasina kubatana ne kuti mazanu nema mdc vanogara vachimarana. mari yekunze handiyo dambudziko, dambudziko nderekuti hatinawo chatiri kugadzira totengesa kunze kwenyika chinoita kuti tirambe tichiwana mari dzekune dzimwe nyika. hapana kunze kwekungoti ma Chaina arikuya kuzotora tumarui twatinatwo achititengesera ma sokisi nema penty zvinobvaruka ipapo ipapo.

  6. until somebody has explained to me how we ended up having excess rtgs balances in our economy i will never believe any policy proposal by the current gvnt. the same people introduced the bond note lying to the people of Zimbabwe that they were backed by US dollars. if there are US dollars, then the minister should have simply asked the public to go and deposit the bond in bank accounts and get back their US dollars (the gvt shud simply buy back the bad at 1:1 since it is increasing the cost of doing business and also chasing away real money)

  7. You said 2 cents for every dollar. This is over and above P.A.Y.E and VAT then the transaction cost for every electronic payment made. How much are people earning. You said you what to catch up with informal trader? It’s just like putting everyone behind bars because you what to catch the criminal who is amongst them. Ncube if you still want to remain credible jump off this ship you will end up like the ill forgotten Murerwa. No One still remember him these people can kill and bury your career alive

  8. God help Zimbabweans , May the government have mercy on struggling citizens .ZANU PF Swallow your pride and invite MDC to form a Government of national Unity in preparation of professionally managed elections .
    Policy inconsistency is killing the bleeding economy.

    Governor ,please hear the people . We must open Local Currency Accounts not Foreign Currency Accounts ,since we opened the ones we have as Foreign Currency Accounts.You convinced us that Bond is as good as US$, meaning, our current Bank Accounts are the original FCA Account not the other way round.

    We must now open new Bond and RTGS Accounts not the other way round , it’s daylight robbery sir!

  9. You said 2 cents for every dollar. This is over and above P.A.Y.E and VAT then the transaction cost for every electronic payment made. How much are people earning. You said you what to catch up with informal trader? It’s just like putting everyone behind bars because you what to catch the criminal who is amongst them. Ncube if you still want to remain credible jump off this ship you will end up like the ill forgotten Murerwa. No One still remember him these people can kill and bury your career alive. Without the wisdom of God you will not do anything

  10. We need to be rational and probably accept that we can only work with what these guys have proposed. Give it a chance. The taxing of electronic transactions aims to expand the tax base. It is the most effective way of taxing informal businesses. Every citizen has an obligation to pay tax. The resultant increased revenue will help to reduce govt borrowing, which is the rtgs that has led to the rampant “exchange rate”. The govt would rather increase taxes than “print” rtgs money.

    1. …and if they fail to raise the money because the tax base is shrinking everyday?
      Stop-start thinking which lacks coherence, dishonesty, greed and outright theft are killing this country. This is why the urbanites wanted a fresh party to run the govt, not this rusty lot.

  11. kkkkkkkkk ED pfoooooooooooo!!!!!!!!!!!!!! we are headed to the bottom of the biggest trouble pit .We can not have foreign currency accounts bcoz the money that is in our bank account is foreign money American dollar simply bcoz we do not have our own money the bond is just American dollar Zombie . Any changes to money in anyone bank acc without agreement is inhuman and fraud and we can not let that happen now its too much .

  12. They surely will “ILLEGALLY BORROW” from your foreign accounts. Watch this space. My advice, “KEEP YOUR FOREX UNDER THE PILLOW”,in the meantime and make sure no one knows about it.

  13. God help us we have suffered, we have been tossed to and fro like dried leaves and we cant even know whether we here nor there. May you please uproot these criminals from the face of this earth maybe just maybe we may see light again in this nation.

  14. is it possible to talk ncube n mangudya to court for this pliz vakadzidza dairai?

  15. ma tax mangani varume PAYE wozoti zve intermediated tax 2% per every dollar transfered

  16. Hapana unomboisa US dollar muaccount, kunze kokuti pane waari kuda kutumira. Muturi haazivi izvi. Hapana ane confidence nema bank emuno. Tinongomasevenzesa nokuti pay inopindira ikoko. Saka kana kusina pay yema US ndiyani ungasimuka kunoisa ma US ake kubank? Kugwara uku.

  17. Hapana unomboisa US dollar muaccount, kunze kokuti pane waari kuda kutumira. Muturi haazivi izvi. Hapana ane confidence nema bank emuno. Tinongomasevenzesa nokuti pay inopindira ikoko. Saka kana kusina pay yema US ndiyani ungasimuka kunoisa ma US ake kubank? Kugwara uku.

    1. exactly

  18. Economies are run on established economic theories and laws. This Zama Zama economic management from ZANUIOTS expose what we already know.. THEY DON T HAVE THE POLITICAL WILL TO CHANGE DESPITE THE RHETORIC…Lethal contradictions abound;where are the people going to get USD to give the government to invest for them offshore….Okay, if I have USD and wish to use it to buy in Zimbabwe, what would be the value of my money in RTGS terms, and where would I change it?…Aren t the current accounts legally USD accounts? Or? I learnt somewhere that taxation ought to be progressive otherwise you risk piling relatively a higher burden on the poor… aren t issues of citizen taxation supposed to be legislated? here people are taxed on the strength of a statutory instrument? …

  19. you cannot compare eggs with eggs. Zanu will always be Zanu, this new dispensation thing, kkk forget it

  20. I figured out that, the Zimbabwean financial situation isn’t just a monetary or fiscal phenomena, we ought to likewise as nationals enable our coming up short government to purchase making a greater amount of the underground economy. This will support the work levels of this substandard economy and along these lines expanding the level of generation, this will help the exchange balance as we may import less because of the little underground firms. Despite the fact that this diminishes government income, it is best for us as nationals to stay away from these unnecessary taxes since they are expanding our cost of production.

    The administration of Zimbabwe, then again should battle to make a financial specialist benevolent condition. Such condition will likewise pull in speculations and investment from different countries, in this way expanding the GDP of the country. Likewise we as local people, benefit from the overflow impacts, for example, work creation, better expectations for everyday comforts, more imaginative innovation, and furthermore expanded nature of yields.

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