By Elvis Dzvene (Economy, Banking and Financial Analyst (EBFA)
Monetary and fiscal policy measures are not only irrelevant but also invalid in curbing Zimbabwe’s current economic problems. Actually, they worsen the situation and make the “Zimbabwe is open for business” mantra a toothless dog.
Allow me to express unbiased economic facts which are for the betterment of our nation. To dig for mice needs concerted effort (Shona proverb – Kuchera mbeva hukomberana). The adage goes on to say “One who does not listen is often found with a wound on the forehead.” It’s high time we put collective efforts in protecting and reviving the welfare of ordinary poor citizens.
As alluded to before the measures articulated to as solutions to the financial problems of Zimbabwe can be classified as a pig in the poke anti-progress policies in relation to the new dispensation theme. It can be hoped that the policy makers only assumed the reality of what is happening on the ground in the comfort of their offices. They only adore the fundraising side without enough evidence of poor quality life experienced by the people of Zimbabwe. Negative consequences of these solutions override merits as narrated below.
The new tax regime from 5 cents per transaction regardless of amount, to 2 cents per every dollar exerts a double punishment to the ordinary people who are already suffering because their salaries which are below the poverty datum line.
The 2 cents tax per dollar will be exempted on transactions below $10 only. Other transfers which are exempted from 2 cents are; transfer of funds on purchase and sale of equities, funds for payment of salaries, payment of tax, intra- company transfers, funds on purchase and redemption of money market instruments, funds in respect of foreign currency related payments and transfer of funds by government. Thereby burdens the underpaid and poor people.
All the adverse responses from the experiment will definitely hit ordinary citizens in many ways as illustrated below. The effect of new tax regime is it increases cost of electronic transfers, for instance transferring $500.00 at 2 cents tax will take $10.00 plus transfer charges. In the past, it was only 5 cents plus bank charges regardless of the amount.
- It triggers cost push inflation. The new tax regime perpetuates price increases on goods and services starting from the small businesses. For instance, let’s look at sole traders non company accounts. For these to cater for the 2 cent tax on purchasing raw materials they will cushion themselves by increasing prices of their products. Eventually all firms will retaliate, hence, cost push inflation shoots up as signs already showed up before the implementation of the new tax regime.
- The new tax regime promotes black markets. The conditions made are conducive for informal money changers, as everyone wants to hold hard cash to escape the 2 cents tax. This promotes an increase in the price trade of bond notes and the USD at because of disparities between the bond notes, RTGS balances and US Dollars.
- Conditions presented above are not conducive for boosting and opening up new domestic industries due to high electronic transfer costs with no alternative way due to hard currency shortages.
The separation of foreign currency accounts from RTGS deposits means all RTGS balances are no longer US dollars. It’s a polite way of advising the nation about the return of the Zim dollar via RTGS.
Having FCAs and RTGS accounts separated will cause a price increase and shortage of basic imported commodities, such as fuel and pharmaceutical products, among others. This adverse response will jump in since the nation is assuming it is using US dollar as the country’s currency yet they have vanished from circulation. The situation is then made worse due disparities between bond notes, RTGS balances and US Dollars.
The directive to foreign trucks to pay for fuel in foreign currency is actually relevant but totally invalid. The disparities between bond notes, RTGS balances and US Dollars means there is creation of a black market, since locals will just purchase and sell to the foreign trucks at a profit.
In conclusion, it can be said there is need to adopt policies that do not strain ordinary citizens as they are already suffocating. It’s better to be Penny wise and pound foolish because at the end the poor citizens are the victims. Issue of a competitive currency must dealt with first. However, amendments are of great importance for our motherland to attract domestic and foreign investors in a conducive business environment.