Mangudya offers renewed economic hope and confidence in monetary policy

By Byron Mutingwende


The Governor of the Reserve Bank of Zimbabwe (RBZ) has delivered a monetary policy statement punctuated by renewed hope and confidence in economic rebound driven by the current political dispensation.


John Mangudya, the RBZ Governor made the statement in terms of Section 46 of the RBZ Act Chapter 22:15 which requires the Bank to issue a statement containing a description of the monetary policy to be followed by the Bank during the next succeeding six months, and a statement of the reasons for those policies; a statement of the principles that the Bank proposes to follow in the implementation of the monetary policy; and an evaluation of the monetary policy and its implementation for the last preceding six months.


“The Statement comes at a time when the economy is experiencing renewed hope and confidence ushered in by the new economic dispensation, following the formation of a new leaner cabinet by His Excellency, the President, in November 2017. This renewed hope and confidence would need to be supported by going back to basics to restore business confidence and to foster discipline within the national economy. Accordingly, this Monetary Policy Statement seeks to buttress this confidence trajectory by putting in place measures that gradually liberalise the foreign currency market in order to indicate that the country is ‘open for business’.


“The Bank has continued to make concerted efforts to address cash shortages, which are a direct reflection of the tight foreign currency macro-economic environment that is exacerbated by the transmission impact of the persistent fiscal deficit on the financial sector. Addressing this current macro-economic imbalance requires a sharp rise in foreign exchange reserves and an improvement in the fiscal balance,” Mangudya said.


He added it was against that backdrop that the interventions by the Bank in the foreign exchange market through nostro stabilisation facilities had greatly assisted the economy to meet the ever growing demand for foreign exchange and, in doing so, stabilising parallel market activities and sustaining the financing of critical imports such as fuel, electricity, cash, medicines and essential consumer goods. In addition, policy interventions to promote exports continue to bear fruit as evidenced by the continued narrowing of the current account deficit. In this regard, Zimbabwe’s current account balance is now within the international best practice range and also consistent with macroeconomic convergence targets under the SADC and COMESA guidelines.


In order to enhance business confidence and credibility under the ‘Zimbabwe is open for business’ narrative, the RBZ is putting in place supportive monetary and fiscal measures. The panacea for the challenge of tight foreign currency is to increase production, exports, foreign direct investment, diaspora remittances, loans and putting in place measures to protect investors’ funds. In line with this narrative and to enhance the ease of doing business in the economy, the following measures are being put in place with immediate effect to gradually liberalise the foreign currency market and promote business confidence.


The Bank is enhancing the Nosto Stabilisation facilities by US$400 million to provide assurances that international remittances and individual foreign currency inflows received through normal banking channels are available for use when required by the owners. This also makes it possible to meet the foreign exchange requirements for the importation of essential requirements that include fuel, medications, electricity, cash imports, and industrial raw materials for the manufacture of cooking oil, other food products, packaging and exports.


The RBZ is working with the African Export-Import Bank (Afreximbank) to put in place a US$1.5 billion facility that is earmarked for the provision of guarantees (US$1 billion) to investments coming into the country and for liquidity support (US$500 million). Such guarantees and liquidity support are necessary to protect investors’ funds from country risk, and in doing so, enhancing investor confidence.


In order to provide return on remittable funds currently held in Non-Resident Transferrable Accounts in respect of in-country funds such as dividends and profits due to non-residents that cannot be immediately remitted as a result of the current foreign currency shortages, such funds can now be invested in tax-free savings bonds at a coupon rate of 7%. This compensation process is necessary to assure investors of returns on their idle funds seated at banks.


In line with the current economic dispensation’s aspiration to transform agriculture into viable business proposition and taking into account of the significant improvements made by Government on the 99-year leases to enhance the security of tenure of the lease and making it bankable and transferrable, the RBZ has agreed with banking institutions for them to accept the 99-year leases as security for accessing credit from financial institutions in line with the provisions of the leases.


Economist Dr. Prosper Chitambara said the measures by the RBZ would assist in bringing confidence in the economy. Zimbabwe has been isolated for long and its critical to attract investors.



“Making the 99-year leases bankable and transferrable should assist in unlocking private sector funding for agriculture although the interest rates still remain on the high side,” Dr. Chitambara said.


The other positive measures that Zimbabwe has adopted in the past include the ease of doing business reforms, the revision of the Indigenisation Act and re-acceleration of the Lima process.