Three years ago Mnangagwa assured “business and the general populace that bond notes are not going to replace the multi-currency basket”.
Fast forward to today, trading in any other currency outside the bond note and RTGS is now illegal in Zimbabwe through Statutory Instrument 142 of 2019.
RBZ’s policy interventions this week have sent many Zimbabweans spiraling. While it was common knowledge that eventually we would have a currency of our own, very few expected it to be so soon and to be conducted in such a manner: with little information, no preparation and no transparency. The president even misled the public promising that it would be within 9 months – only for a new currency to be introduced through a market ambush that immediately banned domestic transacting in other currency.
If you had opened an FCA account and deposited forex money in it, trusting that you will always have unrestricted access to it, the RBZ has disappointing news for you! For local transactions, you are forced to exchange your forex for Zimbabwean Dollar using the interbank rate. Unconditional authorization for foreign currency withdrawals has also been removed.
With the rushed manner, this policy change has been implemented, it is quite apparent that there has not been full consideration about the potential effects of this on the ordinary people.
A government detached from its people
The Ministry of Finance has quite recently proved to be obtuse to the plights of ordinary Zimbabwe.
Prices for basic goods in the consumption basket in Zimbabwe have dropped by an average of 19% in US$ terms, from January 2018 to June 2019. See table below from Treasury. The prices in RTGS$ terms are therefore grossly inflated. pic.twitter.com/91kS978jfK
— Prof. Mthuli Ncube (@MthuliNcube) June 22, 2019
Not too long ago, Mthuli Ncube posted a tweet on how the USD prices have fallen by an average of 19% with no regard of how in comparison USD earnings have been significantly eroded.
On multiple occasions, he and the President publicly celebrated a budget surplus of $200 million. This meant nothing when many citizens do not have access to clean water, electricity or reliable health care.
The Ministry of Finance also has maintained the USD tax regime against RTGS salaries which has resulted in the effective tax rate increasing (over an above the 2% IMTT tax).
Clearly, the new dispensation in the Ministry of Finance has no qualms about taking the public as casualties in their austerity measures.
The new policy announcements are consistent with this attitude. It is not evident how the government considered how such an immediate and ill-communicated ban of multi-currencies would affect the citizens.
How will traders who import products restock if they can’t trade in foreign currency? Worst case scenario is local prices might skyrocket to hedge against foreign currency shortages. Products might disappear from shelves and more Zimbabweans might be “incapacitated”.
Is it too early for the return of the ZimDollar?
The general sentiment is that it is too early to introduce a local currency – Are market fundamentals in place? Does the government have sufficient reserves to back its own currency? Is government spending disciplined? Is there public confidence in the government and the banking system? So many unanswered questions aggravated by poor stakeholder consultation.
It is clear that the government has become desperate and is hunting for measures to slow down the depreciation of the local currency. While it is not yet clear what the impact will be, the market is apprehensive. Will the government once again print Zimbabwean dollars without compunction? The only thing that is clear so far is that the Reserve Bank is capable of anything – including repeating the very actions that led us to hyperinflation in 2008.