THE bold declaration by Reserve Bank of Zimbabwe governor John Mangudya last week that they will continue to tame inflation and stabilise the local unit is encouraging. We believe this is the tone needed for the economic turnaround Zimbabwe desperately needs.
The RBZ governor, who spoke during the mid-term monetary policy statement (MPS) review organised by the Zimbabwe Independent published by Alpha Media Holdings on Friday last week, said growth stimulating policies rolled out in the past year had laid the foundation for currency stability, one of the biggest headaches confronting the country.
“We, therefore, need to focus on controlling inflation, in taming inflation, so that at the end of the day the preference (of foreign currency) is reduced because the value of the local currency would have gone up,” the central bank chief pointed out.
No one would argue that the monetary authorities have made strides in curbing galloping inflation which had surpassed the 800% mark in July last year. Year-on-year inflation last month stood at 56,37% which is the first time the annual inflation rate has gone down to two digits since 2019.
Measures such as the introduction of the foreign currency auction market in June last year, though facing some challenges, has been hailed by companies for easing foreign currency constraints and improving productivity. It also contributed to the easing of the inflation rate.
However for Mangudya’s measures to be more effective, President Emmerson Mnangagwa’s administration must put in place policies that complement his efforts.
The government’s shocking decision to introduce the Zimbabwe dollar, and ban the multi-currency regime through Statutory Instrument (SI) 142 of 2019, wreaked havoc on the country’s fragile economy. It is not a coincidence that annual inflation shot to three figures soon after that ill-timed decision.
The local currency was severely weakened, and incomes and pensions which were indexed to the local currency were decimated as a result of SI 142 of 2019.
Government then made an embarrassing U-turn last year and brought back the multi-currency regime ostensibly to ameliorate the impact of the COVID-19 pandemic.
But, the introduction of SI 127 of 2021 in May which prohibits business operators from charging above the official exchange rate among other measures triggered a wave of price hikes in local and foreign currencies. Mangudya said after consultations with business the bank would restrict SI 127 to, among other things, sanction companies abusing foreign currency availed on the foreign currency auction market launched in June last year.
These retrogressive government policies have hampered the central bank’s bid to tame inflation and stabilise the local unit.
That said, Mangudya’s efforts to revive the economy will be in vain if government does not play its part in putting in place policies that support the turnaround of the economy.