Sunday, May 13, 2018

Cash shortages: RBZ lays out game plan

Dr John Mangudya
When we are taking about cash shortages, it is important that we deal with the issue by first looking at economic fundamentals.
There are basically two major economic fundamentals that are causing the cash shortages..
The first one is that we have a current account deficit, because of the trade deficit. That is a result of our imports being higher than our exports.
The other fundamental aspect is that our expenditure in Government is higher than revenue.
Government is trying to address these two fundamentals so that our economy can function properly by increasing production so that we can build the confidence that is required for any economy to function properly.
This is why Government’s thrust on opening up Zimbabwe for business is very fundamental and critical to deal with those two fundamental challenges.
When we open up the economy for business, it means we are attracting foreign and local investment.
It means that you are improving the cost of doing business in Zimbabwe, which are critical to enhance business confidence and to enhance production.
Production is the key to any economy, and you can see that in developed countries, there is plenty of construction, trade, leveraging on their resources: they produce in large volumes and they make the most out of it through beneficiation.
Our biggest challenge as a country is that we have the resources but we are not leveraging on them.
We cannot leverage on resources when the environment is not conducive for business.
So we need to expand the economy through increased production.
What we need to do is fiscal expansion so that we also have room for fiscal space.
We can only expand fiscal space by expanding production and this will also lead to more people paying VAT (value added tax), more people paying corporate tax, payee and so forth.
That can only be found when the economy is expanding.
Our situation is not good because these are the fundamentals that we need to sustainably minimise the cash challenges in Zimbabwe.
In the meantime, we continue to increase the importation of cash into the economy and we continue to promote usage of plastic money so that we preserve our foreign currency for importation of goods and services.
Sometimes, we have what I prefer to call double dealing in our economy.
We import cash to purchase fuel at the service stations, but that fuel which we are purchasing has also been imported.
So we are in a situation where we are importing cash to import fuel which has also been imported.
So it means we are double-dipping. It means you have to be rich to be able to sustain such a situation. The same is happening for cooking oil. 60 percent of the cooking oil in Zimbabwe is imported, both in the form of the packaging and also the crude soya oil.
We are also purchasing gold and tobacco in foreign currency as a way of incentivising the producers so that we can continue to increase exports.
On the part of the Reserve Bank, we have put in place a number of interventions and special facilities in the market. We have enterprise development facilities, export facilities’, women and youth empowerment facilities, all in an effort to increase production.
We are happy the President has said that we should now move from the politics to production.
I can say that we have imported cash of an amount of about US$400 million from January to the end of April.
This is higher than what we did last year at around the same time.
We are going to continue doing that. This has been because of the facilities provided by Afreximbank, increased production of gold and tobacco and also the need to ensure that the economy is sufficiently liquefied so that people can transact.
The plan is to continue drawing from these facilities so that we continue liquefying the markets.
This amount of money ordinary would be enough to serve our cash needs but we have said it many times that the problem is that the money is not circulating.
The biggest challenge that we have in Zimbabwe is poor circulation of money.
If the money was circulating, we would not be having the cash challenges that we are having. Zimbabweans are looking at foreign currency as a store of value and not as something that they should circulate.
Instead of circulating the money in our country, a good number of our people take the money out of the country by paying for DSTV, paying for school fees for their children in foreign countries, shopping in other countries and many other means of cash flight.
There are also other payments such as raw materials and service payments.
Another point is that we now see foreign currency as a commodity. People are selling their foreign currency on the market because they see it as an asset that can fetch a higher price instead of using it for transactions.
We can call it black market, but now people see it as a business. If the supply was sufficient it means no one would be buying it.
It is also about demand and supply. It’s all about economic fundamentals.
We now see it as an investment, so instead of investing in production our goods and services, we now invest in having foreign currency, which stops the greenback from circulating effectively on the formal markets.
This is typical of a country which has a deficit of foreign currency.
On this US$400 million it is difficult to know how much is going to the parallel market because the difficulty about using foreign currency is that it has multi purposes. Therefore if you want to sustain usage of foreign currency you need to earn more of it.
The only sustainable way of getting more of it is through ploughing it back into production or investing in assets. The main point is that if your exports are lower than your imports, there will always be a challenge. It’s difficult to get more foreign currency, other than borrowing.
When expenditure is more than the revenue, we have an overdraft. The context is very important that production is the only sustainable way of mitigating foreign currency shortages in Zimbabwe.
We need a paradigm shift in understanding foreign currency shortages in Zimbabwe, than just blaming Government.
We also need to look at ourselves as a people and assess the role that we are playing in the production cycle and also the role we are playing in earning the foreign currency that we are crying for.
We should shift from having a political understanding of foreign currency shortages. Most people make noise of shortage of foreign currency but they do not export and they do not earn the forex. Its reckless bravado.
What I want to promise the nation is that within the next two months, the queues are going to be minimised.
Starting from the end of this month, we should see increased supply of cash on the market as we get more money from tobacco, increased gold experts as well as increased supply from our lines of credit so that we get more cash into the economy.
Our wish, hope, appeal and prayer is that we need to use cash concurrently with plastic money. 96 percent of our financial transactions volume wise are now using plastic money.
We call on people to use cash sparingly because the same cash is required to import critical goods and services into Zimbabwe.
We also want to minimise double-dipping because we are dipping into the same nostro accounts to import fuel, we are dipping into the same nostro accounts to import cash.
Despite these challenges, I want to assure Zimbabweans that in the coming weeks, the queues will ease because we are addressing the cash shortages.

Dr Mangudya is the Governor of the Reserve Bank of Zimbabwe.