Breaking News

'Rushed currency reform could harm Zimbabwe economy'

by Staff reporter
09 November 2018 | 3572 Views
Rushing to implement currency reforms without sufficient stocks of foreign currency to back up the transition would have serious adverse effects on Zimbabwe's economy, which would cause suffering of citizens, global lenders have warned.

As such, Government has been cautioned to maintain the current currency approach, where Real Time Gross Settlement and bond notes are part of the multi-currency basket, until the fundamentals improve to sustain drastic currency reforms.

This comes as Finance and Economic Development Minister Professor Mthuli Ncube - since his appointment in September persistently made pronouncements on the need for immediate currency reforms premised on one of three options namely; abolishment of exchange controls and bond notes by year-end, joining the Rand Monetary Area and introduction of the local currency backed by foreign currency reserves.

Again, at Chatham House in October this year, the minister said the economy was self-dollarising and advised that the bond notes, Zimbabwe's surrogate currency, which officially is ranked at par with the US dollar, would consequently be demonetised.

Global lenders' concerns

However, diplomatic sources told Business Weekly this week that global lenders, particularly the International Monetary Fund "cautiously advised" Minister Ncube that such an approach would have serious negative effects on the economy and could plunge people into extreme poverty.

"It is very unusual for institutions like the IMF to advocate for controls, but on the current situation of Zimbabwe, they feel maintaining the status core is more ideal," said one diplomatic source, requesting not to be named.

"They shared their views with the Minister (Ncube)."

"The IMF also advised on the need for pragmatic approach in dealing with the economic situation rather than an academic or theoretical approach to undertake reforms."

Another source with an international financial institution, said currency reforms can only be effective if they are done post fiscal reforms as doing so before dealing with the latter will bring the country back to similar challenges as those being experienced now.

He said Zimbabwe's problems are fiscal, while currency challenges are just symptoms.

"So you need to deal with fiscal reforms, if you look at the Transitional Stabilisation Programme, the perception is that there is no plan, there are one or two measures here and there, but you don't see the picture yet.




"The main problem is lack of detail, it's a good starting point, but the objectives are so broadly defined and you don't know what it means."

"For us the issue is let's fix the fiscal issue, and the currency will be the next step, because if we haven't fixed the fiscal, we will have the same problem in six months' time, and nothing would have been solved.

"So I think the currency is a symptom of an underlying problem, no matter what currency they choose in the end, as long as the fiscal is not fixed, the currency will fail," said the official who cannot be named for diplomatic reasons.

The caution against rushed reforms come in the wake of the price spiral that ensued wild swings of foreign exchange rates on the parallel markets, used by business that cannot get forex from the central bank under its priority list allocation framework.

Gradual approach to resolving the challenges

Proponents of a gradual approach to resolving challenges besetting Zimbabwe's economy argue the country needs to first increase production, exports, build forex reserves and reopen external lines of credit before instituting drastic currency reforms.

For instance, the central bank says Zimbabwe requires foreign currency import cover for three months of at least $1 billion to cushion the country from the potential shock repercussions, which can be caused by shortage of hard foreign currency.

With the central bank unable to allocate foreign currency to every sector of the economy, the parallel market has become a major source of the scarce commodity. To a significant extend this has a bearing on the behaviour of commodity prices in the market, as the pricing has tended to track movement of the foreign exchange rates.

Speaking to journalists after the swearing in ceremony of the new Cabinet, Prof Ncube said the currency reforms were necessary since the current approach was not working. "I am very clear that there have to be currency reforms," he said.

Prof Ncube reiterated the statement at Chatham House in the United Kingdom saying "the market is setting the pace. What is left for us is choreography and management of economic fundamentals.

"The economy has dollarised (and) the bond note will be demonetised at the same point because it was already a surrogate local currency, but without fundamentals to support it."

Eonomy Reform Zimbabwe

Source: Business Weekly

Comments

Latest News

Recent stay-away will NOT deliver the Zimbabwe we want - 'no planning ...

by Nomusa Garikai | 23 January 2019 | 1 Views

'What unites us is stronger than what divides us' argue Mnangagwa - we...

by Patrick Guramatunhu | 23 January 2019 | 1 Views

ZEC testifies in Biti case - The Zimbabwe Electoral Commission (ZEC) h...

by Staff reporter | 23 January 2019 | 198 Views

Mnangagwa mourns Tuku - President Emmerson Mnangagwa has sent a messag...

by Staff reporter | 23 January 2019 | 164 Views

ZANU PF officials disrupt lessons at secondary school - ZANU PF offici...

by Simbarashe Sithole | 23 January 2019 | 1222 Views

Tribute to Oliver 'Tuku' Mutukudzi

by Dr Masimba Mavaza | 23 January 2019 | 1345 Views

130 000 flee army killings to South Africa

by Mandla Ndlovu | 23 January 2019 | 4620 Views

'I failed to change ZANU PF from within' says Jonathan Moyo

by Mandla Ndlovu | 23 January 2019 | 4958 Views

Kombi drivers refuse to leave bus terminus - COMMUTER omnibus drivers ...

by Staff reporter | 23 January 2019 | 4405 Views

New twist in Tendai Biti case - MDC Alliance Harare East MP Tendai Bit...

by Staff reporter | 23 January 2019 | 3331 Views

BREAKING: Prophet Makandiwa cleared over 'fake prophecies'

by Staff reporter | 23 January 2019 | 2870 Views

Social Media reacts to music legend Oliver Mtukudzi's death

by Staff reporter | 23 January 2019 | 4422 Views

The fantasy that Mnangagwa would fix Zimbabwe is now fully exposed - A...

by David B Moore I The Conversation | 23 January 2019 | 2107 Views

MDC MPs languish in Hwahwa prison

by Mandla Ndlovu | 23 January 2019 | 2049 Views

Zimbabwe begins to settle IATA debt - The government has started servi...

by Staff reporter | 23 January 2019 | 747 Views

Mawarire bail hearing delayed

by Agencies | 23 January 2019 | 477 Views

'Mnangagwa beware of Chiwenga' Malema warns

by Mandla Ndlovu | 23 January 2019 | 11964 Views

Zimbabwe shutdown, a noble cause but many things went wrong!

by Nomazulu Thata | 23 January 2019 | 1502 Views

Post-Election violence commission submission - I am an independent mem...

by Terence Simbi | 23 January 2019 | 928 Views

ZANU plot against MDC officials exposed

by Bekithemba Mpofu | 23 January 2019 | 3636 Views

UK piles pressure on Mnangagwa

by ZimLive | 23 January 2019 | 7280 Views

MDCs welcome Mnangagwa's call for dialogue

by newzimbabwe | 23 January 2019 | 2594 Views

Mthuli Ncube vows bold economic turnaround

by ZimLive | 23 January 2019 | 1451 Views

Mnangagwa's move to go after rogue soldiers welcomed by analysts

by Staff reporter | 23 January 2019 | 980 Views

UK Lord urges Zimbabwe recolonisation

by newzimbabwe | 23 January 2019 | 2196 Views

High Court ruling on Internet hailed - Information, communication and ...

by Staff reporter | 23 January 2019 | 225 Views

Entertainment

Oliver Mtukudzi had blood cancer?

by Mandla Ndlovu | 23 January 2019 | 160 Views

'Why do you worship guns?' Mnangagwa asked

by Mandla Ndlovu | 23 January 2019 | 2007 Views

BREAKING: Oliver Mtukudzi dies

by Mandla Ndlovu | 23 January 2019 | 10558 Views

Ailing Mtukudzi misses Coca-Cola awards

by Staff reporter | 23 January 2019 | 3139 Views

LISTEN: Tocky Vibes disses soldiers

by Mandla Ndlovu | 22 January 2019 | 3226 Views

Africa Human Rights Film Festival

by Agencies | 18 January 2019 | 150 Views

Mahlalela ropes in Omkhula in new film

by Staff reporter | 13 January 2019 | 375 Views

Sandra Ndebele reflects on music journey

by Staff reporter | 11 January 2019 | 309 Views
iBlog

Mobile Spy Software Maker Mspy Hacked

mspy, the makers of a software-as-a-service product that claims to help more than two million people spy on the mobile devices of their kids and partners, to have been massively hacked. a public relations pitch from mspy to krebsonsecurity in march ... Read More
SecNews 17 May 2015 ago

What To Look For In Video Converter Software

looking for the best video converter software? you have to compare different video converters before making a purchase.the ability to watch video on different types of devices is a wonderful thing. not so wonderful are the compatibility issues that ... Read More
Sergey 19 June 2015 ago