Finance Ministry Vows To Fight Tooth And Nail To Save Zim Dollar From Another Collapse
The government will introduce a series of key economic interventions to anchor stability of the recently reintroduced Zimbabwean dollar, cognisant of challenges posed by low market confidence and limited foreign currency reserves to support the currency, a Treasury official said.
In a speech read on his behalf by Ministry of Finance and Economic Development chief communications officer, Clive Mpambela, during a devolution conference hosted by our sister publication Business Weekly in Gweru on Friday, Andrew Bvumbe (finance permanent secretary non-accounting) said reintroducing the domestic currency had become inevitable.
Zimbabwe had since 2009 been using a multi-currency regime, largely dominated by the United States dollar until June this year, when it scrapped the system amid an acute shortage of the greenback to meet the demands of a much bigger economy.
The government contends that while a strong and stable US dollar had stabilized the economy, between 2009 and 2012, the currency had started to pose serious constraints to sustained rapid growth because it made Zimbabwe’s exports uncompetitive.
As such, Government made it a point under the Transitional Stabilisation Programme (TSP) that it would institute currency reforms in order to address the growth constraints posed by a strong currency as well as challenges presented by its shortage.
“The economy had been using the multi-currency arrangement which constrained economic growth dynamics. (There also) was a higher demand for foreign exchange, with transactions on the parallel exchange market attracting premiums on either the bond note, or RTGS$. A new and more competitive currency has to be the solution,” he said.
While the domestic currency was successfully restored, Mr Bvumbe said maintaining its stability faced the twin challenges of low confidence and little foreign reserves to support it.
In view of these hurdles, Mr Bvumbe said the solution lay in measures for sustained macro-economic stability, generation of adequate foreign currency reserves to support the currency, enhancing business confidence and attaining rapid economic growth.
The currency reform measures are part of a basket of targeted economic reform measures under the TSP’s whose immediate task is centred on macro-economic and fiscal stabilisation.
The two-year programme, which runs from October 2018 to October 2020, is expected to lay a solid foundation for attaining the overall goal of a strong, sustainable and shared growth.
Broadly, TSP entails measures for fiscal consolidation, stabilising the macro-economic and financial sector, implementation of quick win infrastructure projects to stimulate growth, introducing key policy and institutional reforms to transition to a private sector led growth.
Writing in the US publication Financial Times, Finance and Economic Development Minister Mthuli Ncube last week said that achieving sustainable growth was inevitable without a local currency, scrapped in 2009 at the height of hyperinflation.
Following hyperinflation at the close of 2009, and to stem the instability produced by bad governance and fiscal ill-discipline, a mixture of other currencies — the US dollar, British pound, South African rand, the euro, the Chinese renminbi and the Botswana pula — became Zimbabwe’s media of exchange in place of the Zimbabwean dollar.
The Cambridge University-trained professor of economics said while multi-currency had curtailed household price increase — its primary purpose — was now outdated.
“Dollarisation has acted as a brake on Zimbabwe’s economic development as we are a country reliant on exports. The strong dollar stifled our competitiveness. Without our own currency, we have had no control of monetary policy.
“We have had no mechanism to stimulate economic activity — not exports, nor foreign direct investment — or to deal with downturns in international markets. That is why the Government must introduce its own new, and permanent, fiat currency,” he said.
The Treasury chief said the introduction of the Zimbabwean dollar was not a “political” decision, but simple economic and geopolitical necessity. He noted that Zimbabwe’s economic recovery would still depend on export-led growth.
Minister Ncube said to an outsider, it might appear puzzling that Zimbabwe had made the decision to reintroduce a local currency, given the amount of foreign currency to back the unit, this was necessary.
“Yet, with the US dollar strengthening over the years against the currencies of Zimbabwe’s major trading partners, exports were continually losing competitiveness. A fresh tranche of foreign exchange in the required volume and time-frame was improbable.
“Sooner or later, the current administration knew it would have to introduce a new, national currency. Prevarication would only place Zimbabwe in a weaker position. It was a choice between short-term turbulence now or far greater anguish later,” he said.