INTERVIEW: Tatira Zwinoira
The economy is imploding and mostly as a result of the Zimbabwe dollar losing value.
As the country approaches the New Year, NewsDay Business reporter, Tatira Zwinoira (ND) talks to the Reserve Bank of Zimbabwe governor John Mangudya (JM) about plans to stabilise the currency.
ND: A lot of businesses are optimistic about the first quarter of next year. What do you think of it?
JM: That is why we are trying to put our house in order so that the New Year will be a better year for everyone and that we will continue with the spirit of love and discipline so that the economy will move on that pace.
ND: In trying to examine what went wrong with the Zimbabwean dollar as it has failed to maintain its value, what are your thoughts pertaining the issue from the authorities’ side, as Reserve Bank?
JM: I am not sure how the Zimbabwe dollar failed to maintain its value. That question presupposes that the authorities had made a statement on where the Zimbabwe dollar should settle. Where are you coming from yourself?
When you say it’s not getting its value, it sounds as if someone had told you that the Zimbabwe dollar was supposed to settle at a certain level which is not true.
TZ: As the Reserve Bank, did you not have your own expectations?
JM: That is what I am saying that I do not rely on hear-say, which does not have evidence. For you to say it has failed, it means you already had your own objectives over the issue. It seems you had your own predetermined level that you thought the Zimbabwe dollar was supposed to settle.
The best way of saying it is as follows: The economy is in transition and that transition will liberalise under the TSP (Transitional Stabilisation Programme). We liberalised Zimbabwe’s exchange rate/prices and because we liberalised them, it means the exchange rate was supposed to find its level within the market because it is market-determined. In that market determination, our mandate, objective and key focus area was to make sure that the Zimbabwe dollar remains stable at a certain level where it would have to settle.
So the issue now is on how to make it settle where it is so that it would not pass through the effects of inflation. If you ask me whether we believe the exchange rate is now stable, we will say yes because over the past two months up to December, the exchange rate has been stable.
TZ: That’s quite true because I have seen on the interbank parallel market, the exchange rate is now relatively stable, but …
JM: The next question should be what are we going to do to ensure that the rate of the exchange remains where it is as it is relatively stable? So, there are two deliverables that we are going to work on, that is, to ensure that the reserve monetary target is maintained at levels that do not put pressure on the exchange rate and we are also ensuring that we will seek finance through the letters of cash that we are issuing out so that the demand for foreign currency would reduce on the interbank market by the use of debt instruments called letters of credit.
A letter of credit is a debt instrument which makes it easy to plan for cash flow in a manner that helps to reduce pressure on the exchange rate and, therefore, for bulk imports like fuel, maize and cooking oil. By so doing, we are looking for foreign currency through letters of credit to ensure that there is not too much money on the market by making sure that we target our reserve money growth.
In that way, it will pass through the benefits to the inflation so that prices are also stable.
So, our main job, going forward into 2020, is to maintain price stability through the exchange rate stability and to ensure that the public has confidence in the local currency. That has to simultaneously harness as much foreign currency as possible from the people in the diaspora and the exporters so that we improve on the efficiency and the utilisation of the foreign currency in Zimbabwe.
TZ: But governor, don’t you think you should be focusing on trying to get foreign currency reserves to stabilise the currency because, unlike in America, where they use just the confidence in the economy to stabilise their currency, there is no confidence in this economy. You have said it yourself so many times, so don’t you think where there is no confidence in the economy, something should be backing our economy other than the reserve money that you are targeting?
JM: We are saying the same language here. We are saying we are managing our local currency so that we do not put pressure on foreign currency exchange because people have got much money in the market because they increased the rate of the currency.
And we are also saying simultaneously, we are going to harness as much foreign currency as possible from the diasporas and the exports (by) giving them incentives so that the exporters continue to export.
Besides, the market will become competitive and at the same time, the people in the diaspora will bring in money. I am talking about an open market economy.
TZ: So how much foreign currency do you think as the central bank will be enough to sustain our local currency?
JM: Let me put it this way. Once the confidence levels are high and if there is discipline in the market and the love within the Zimbabweans which is the fundamental principle of life, with that, I can tell you that the economy will become so simple and grafted towards the growth in the new year.
I am hopeful that what the Zimbabweans have gone through over the year which has been difficult cannot continue under that context.
This economy requires about US$520 million on a monthly basis for us to be comfortable with our economy and its earning around US$490 million.
If you get more money from the exports and that from the diaspora and if we get more money from the letters of credit and money from the finance, we can bridge that gap of about US$30 million very easily.
Our foreign currency situation is very stable and fundamentals on the foreign side are not that bad.
TZ: As the Reserve Bank, how are you going to build confidence in the economy in 2020?
JM: We are going to focus on a number of things in the New Year. We want to lower to under 5% by year end the month-on-month inflation.
TZ: And with the exchange rate, what level are you targeting?
JM: We are expecting a stable exchange rate, but that one is very difficult to measure, but we expect it to be stable in view of what we are doing on the foreign exchange side to make sure that, as I said, we harness as much foreign currency from within, the diaspora and from the lines of credit.
Number two, under key focus areas, which we are working on as a bank, is to enhance financial sector responsibility to make sure people have got confidence in the financial services sector and that the money remains safe and sound.
The third one is to enhance the functioning of Zimbabwe’s financial markets in support of economic resilience and development.
The fourth, as I was saying, is to ensure they (Zimbabweans) have confidence in the local dollar, currency, and that the cash is disbursed in such a manner that we minimise the premiums that are being charged and that money is available when money is required because that instils confidence in the banking public that they will get their money as and when they need it.
TZ: How are you going to be spending your Christmas, if you don’t mind me asking?
JM: Right now, I am in the office trying to make sure that the economy can keep going forward.
My philosophy in business, Tatira. As you know, in whatever circumstance that you are going through, keep moving forward, whatever the circumstances. So, I want to urge Zimbabweans to know that while we went through difficulties in 2019, we need to keep moving.