Treasury bullish on sustained stability

TREASURY says the economic stability witnessed in recent weeks will continue, insisting that it now has a strong grasp on the causes behind the country’s currency instability.

This comes as a number of observers have said the economy’s current stability — apparently brought about by the fiscal authority’s recent measures — is fragile and cannot be sustained for very long.

Speaking on the country’s popular independent television station, 3Ktv last week, the permanent secretary in the ministry of Finance, George Guvamatanga, said he was confident not only that the stability would sustain, but that the economy would improve.

Finance ministry secretary George Guvamatanga

“This market stability is sustainable during and after elections, and going forward into 2024,” Guvamatanga said.

“We are already planning for 2024, 2025 and 2026 and the basis of our planning is that we are going to have a strong, robust and very stable economy going forward, because we have managed to identify the triggers to those bouts of instability that have from time to time occurred in the economy.

“Those measures were based on correct fundamentals and the correct assessment of the market to ensure that we have market stability,” he said. The permanent secretary dismissed claims that Treasury had throttled payments to contractors to keep a tight lead on Zimdollar liquidity, which some believe to be the main reason for the domestic unit’s recent stability.

“If you look over the course of the last three months, we have been paying government contractors and suppliers otherwise if we were not, government business would have stopped.

“The payment to contractors and suppliers has actually improved… the myth that the government is not paying suppliers and contractors is incorrect and on a daily basis we are making sure we make payments… If you go where there are construction works, the contractors are working because they have been paid.”

This also comes as the central bank has said the current Zimdollar liquidity squeeze will continue for a while longer as authorities strive to further stabilise the local currency and inflation. Reserve Bank of Zimbabwe governor John Mangudya recently told The Financial Gazette that the liquidity squeeze was one of the anchor measures that had been put in place by authorities to stabilise the economy. Mangudya also said the “nascent stability”, which has been observed in the market lately was “expected to continue in the short to medium-term”.

“The bank is, therefore, expecting feedback from business and the general public in order to fine-tune its monetary policy, with a view to sustaining the current promising stability on the exchange rate and inflation front,” he added.

Meanwhile, according to Victor Bhoroma, a local economist, the triggers of economic stability in Zimbabwe are “largely centred on economic policies”.

He said quasi-fiscal operations by the central bank lead to the creation of billions in electronic money, crowding out of the private sector and creating artificial demand for foreign currency.

“An economy can never be stable when annual money supply growth is over 500 percent yet real gross domestic product growth is less than five per cent. Secondly, the manipulation of the foreign exchange system to get cheap forex from exporters and creating bottlenecks on outward foreign currency movement create unsustainable pressure on foreign currency,” Bhoroma said.

Finance Minister, Mthuli Ncube

“Other causes include a lack of fiscal discipline on the part of the government, which means that fiscal deficits have to be financed through central bank overdrafts, clandestine parallel funding structures or domestic borrowing when the government has no room to pay them back shortly.

The current measures have political objectives and proper structural reforms are what this economy needs from investment, taxation, monetary, budgeting and expenditure policies,” he said. Another economist, Prosper Chitambara, concurred with Bhoroma, saying the sustainability of economic stability requires monetary discipline and controlling liquidity in the economy.

“Triggers of instability in Zimbabwe have always been a lack of monetary as well as fiscal discipline, an unsustainable increase in the money supply and a rise in public spending. I think those have been the major culprits for macroeconomic stability.

To sustain stability, it requires monetary discipline and controlling liquidity in the economy because when there is too much money and it’s growing unsustainably, it triggers inflationary pressures through an increase in aggregate demand that is not matched by supply,” Chitambara said.

“We need to ensure that there is control over public spending; it must be within the revenues collected by the government and not go beyond.” And while the market is anticipating a sizeable supplementary budget from Finance minister, Mthuli Ncube in his upcoming mid-term review, it is not expecting any major policy changes.

“We don’t expect many changes on the taxation front. In particular, as the private sector, we have been clamouring for the complete removal of the controversial intermediated money transfer tax. “The nature of the tax head itself poses too many risks, especially on businesses given that it’s a tax head that is not premised on international taxation practices or principles.

“So, we certainly don’t expect any changes, be it on VAT, corporate tax, the IMTT and other tax heads. We think the minister, to a certain extent, will maintain that,” The chief executive of the Zimbabwe National Chamber of Commerce, Chris Mugaga, said last week.

“We don’t also see any changes on the policy front, in particular, looking at the implementation of a number of policies such as the Custom and Excise Act and the industrialisation policy, as spearheaded by the ministry of Industry and Commerce,” he noted further.
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