PARALLEL market rates remained stable yesterday following the decision by Reserve Bank of Zimbabwe Governor Dr John Mangudya to liberalise the United States dollar exchange rate against Real Time Gross Settlement balances. The containment of the parall…
Source: For economy to take off, we must take air out of inflation | The Herald February 21, 2019 The decision taken by Government to adjust taxes on fuel was designed to bring a long overdue reform to correct a structural misalignment Prof Mthuli Ncube Path to Prosperity What is inflation and why must we […]
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Source: For economy to take off, we must take air out of inflation | The Herald February 21, 2019
Prof Mthuli Ncube Path to Prosperity
What is inflation and why must we get it under control? What has been going wrong, and how are we putting things right?
As an Economics Professor, its important I first explain the basics.
In Zimbabwe, like any other economy, goods and services are exchanged or sold at given monetary values; what we call prices.
The levels of prices are on the whole determined on account of production and trading costs, as well as the basic rules of supply and demand.
When there is a period of time, an occurrence or a trend whereby prices of goods and services continue to rise in the economy, it is referred to as inflation. We have all heard about it, but it’s important we all understand it.
High levels of inflation have been eroding the incomes of Zimbabwean workers for too long, directly harming their standards of living.
It has been eating away at our savings and our pensions, risking greater poverty. With inflation, long-term planning for companies becomes impossible as prices keep on changing.
In the same vein, fiscal forecasts become distorted in an inflationary environment. This is why as Minister of Finance, I have vowed to get inflation under control immediately. And we are already seeing results.
In order to understand the progress, we must first look at the means of inflation measurement.
Inflation is the rate at which prices rise over a given period of time. Economists tend to measure it either by year, or by month. The price measurement itself is calculated from surveys done on a given basket of goods and services.
In Zimbabwe’s unique situation, it is important that those measurements are conducted carefully and correctly.
When fiscal management is finally being done right, consumer and investor confidence is crucial, and it would be both dangerous and distorting if these measurements were misreported.
Despite experiencing single digit inflation for the past eight years, Zimbabwe’s year-on-year inflation suddenly rose to 20,9 percent in October 2018 and a rising trend was maintained in the month of November and December, reaching 56,9 percent by January 2019.
The people of Zimbabwe, and the economists of the world, were rightly worried.
However, we acted quickly, and this month-on-month inflation, despite shooting, has been controlled and slowed down to 9,2 percent and 9,0 percent in November and December, respectively, slightly increasing to 10,75 percent in January 2019.
There is, therefore, a real manageable trend in month-on-month inflation; an encouraging development.
So as we move forward, we must get the measurements right.
The sudden rise in prices, that aforementioned shock in October 2018 — relative to the same period in 2017 — has raised the base drastically for comparing year- on-year inflation.
Therefore, higher annual inflation rates are likely to be noted between now and September 2019 on this yearly measurement.
We must be clear to investors that this is the wrong measuring stick.
The policies of restructuring and reforming our economy are beginning to be felt with the month-on-month inflation expected to maintain downward trend from March 2019, a crucial marker of our economic stability and a direct result of these reforms.
Things, therefore, are getting better. It is vital that economic agents, investors, consumers, and indeed policy makers focus their attention on month-on-month inflation developments rather than year-on-year.
Moving forward, there are a number of reasons which cause the prices of goods and services to increase and we must keep our fingers on the economic pulse at all times.
In the case of Zimbabwe, the sudden rise in inflation throughout our history has been linked to fiscal indiscipline and a high import bill relative to export receipts. Wasteful government expenditure in particular created excess money supply, which triggered high demand for US dollars to pay for imports and store value.
Towards the end of last year, what we saw was a sudden rise in the alternative market premium driving upward the pricing of goods, particularly those that can be tradable across countries.
Some importers, manufacturers and retailers were also marking up their prices of goods based on speculation and perceptions of the higher exchange premiums.
The decision taken by Government to adjust taxes on fuel was designed to bring a long overdue reform to correct a structural misalignment.
It was not an easy decision to make. It was not a popular decision. But it was the right decision for our economy.
Inevitably, the overall price of fuel has risen since 13 January 2019, so Government has put in rebate mechanisms to eliminate the automatic pass-on effect of the rise in cost of fuel to all goods and services.
As we continue to battle to lower inflation, month-on-month, to maintain single digit inflation, Government is implementing fiscal consolidation measures aimed at reducing wasteful expenditure and to narrow the import-export gap.
Fiscal consolidation measures are already helping to balance the budget.
On the other hand, the income from 2 percent tax will also be used to rejuvenate and improve the new Zimbabwe; building schools, roads and making sure our nurses, doctors and teachers receive the wages they deserve. We can already see that shelves are full and fuel lines have petered out.
Successes are being noted across our economy following the few months we have had to implement these new consolidation measures.
The alternative market exchange premiums have relatively stabilised and the month-on-month inflation, as noted, has been brought down to sustainable levels incredibly quickly.
With further implementation month-on-month inflation could even reach close to zero by year end.
Fixing the Zimbabwean economy was never going to be easy.
In fact, with the situation we inherited, it was also going to be a tough struggle.
However, with these sensible fiscal measures, we can continue to keep inflation under control, we can continue to increase the foreign currency reserves, and we can continue to create an environment of affordable living for all Zimbabweans.
The process of restructuring, reforming and rebuilding our economy is just beginning. But the train has left the station and we are moving firmly in the right direction.
The writer is the Minister of Finance and Economic Development. This is his latest instalment of his weekly column in The Herald
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Source: Minister Mupfumira calls on EMA & mines collaboration – NewsDay Zimbabwe February 21, 2019 by Online Reporter Minister Of Environment, Tourism & Hospitality Industry Priscah Mupfumira has called on the Environmental Management Agency and the Zimbabwe Mining Federation to work closely in order to avert mining disasters. Mupfumira was speaking on the sidelines of […]
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Source: Minister Mupfumira calls on EMA & mines collaboration – NewsDay Zimbabwe February 21, 2019
by Online Reporter
Minister Of Environment, Tourism & Hospitality Industry Priscah Mupfumira has called on the Environmental Management Agency and the Zimbabwe Mining Federation to work closely in order to avert mining disasters.
Mupfumira was speaking on the sidelines of the First Lady, Amai Auxillia Mnangwagwa’s tour of the site where the tragic drowning of 24 artisanal miners at Cricket and Silver Moon mines in Battlefields occurred last week.
“I call upon EMA, Mines Ministry and the Mining Federation to work together to avoid such disasters from happening in the future. There is need to collaborate on issues of compliance, registration and strict observation of safety regulations.” she said.
“To the miners when safety recommendations and warnings are made by EMA let’s take hid of them as well” she said.
This comes as MINES minister Winston Chitando disclosed to the media that two weeks before the tragic Battlefields disaster last week, EMA had raised a red flag over safety conditions at the two mines, but the warnings were ignored.
“The fact of the matter is that we have EMA, which visited the site about two weeks ago and made observations, which unfortunately were not enforced. It’s not that government is not taking safety seriously, but there were observations, which were made but unfortunately not enforced,” said Chitando.
At least 70 artisanal miners were believed to be underground when the mines were hit by flash floods, before eight of them were rescued, while 24 bodies were retrieved. Search missions are still underway to find at least four miners who are said to be trapped underground.
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Yesterday the Reserve Bank Governor gave a long-awaited monetary policy statement. This had been expected in January and was postponed several times because of disagreements in Government as to what should be announced. The Minister of Finance has been following a carefully crafted reform program to restore fiscal and monetary stability within the framework of […]
Yesterday the Reserve Bank Governor gave a long-awaited monetary policy statement. This had been expected in January and was postponed several times because of disagreements in Government as to what should be announced. The Minister of Finance has been following a carefully crafted reform program to restore fiscal and monetary stability within the framework of sound macro-economic conditions.
When he first came into office I warned him that when he walked into his office, that a bucket full of nasty stuff would fall on his head. It was no understatement. He found that the Reserve Bank was in a complete mess, the Government was spending 40 per cent more than they were collecting and all macroeconomic indicators were so far out of kilter that the State was in crisis. He took immediate steps to stop the bleeding – raising taxes and imposing strict budgetary discipline on all Ministries and Parastatals.
The result stunned everyone – including the Minister. The fiscal deficit vanished and since that time (7 months) we have been running on a surplus over expenditure. The impact was felt throughout the economy – money supply stopped growing and the macroeconomic fundamentals stabilised. He next stated that the RTGS dollars that everyone was using bore no relation to the US dollar. The informal market reacted with shock and the market rate shot up to 7:1 in a few weeks, forcing up import prices and giving rise to hyperinflation.
He next granted everyone the right to hold any hard currency balances in a special foreign currency account at their banks. Initially people and companies were deeply suspicious of these accounts but slowly they began banking any foreign currency earnings or receipt’s in such accounts. Today we have about US$700 million in these accounts and this, in some way, encouraged the Government to start the liberalisation process. In the meantime, inflation was reaching hyperinflation levels and this was in turn boosting fiscal revenues and reducing the real value of the mountain of electronic money created before the changes in August 2018.
The next step was to start the process of taking the country towards a more open and market driven economy where the value of the currency in circulation would be established by market forces. The first question people asked was “do we have a currency”? The answer was “of course” – but it was described by economists as “RTGS” dollars. This was in reference to the fact that it was based on an electronic clearance system called the “Real Time Gross Settlement” system. In other words, it was electronic money, backed by nothing except local sentiment. The other currency was the so called “Bond” notes and coins. Although in limited circulation this was the only local currency available for local transactions.
As with any currency, if you create or print money in excess of transactional needs you automatically reduce its value. This is what has happened to both the RTGS dollar and the Bond notes. By running up a huge fiscal deficit and creating electronic money to fill the gap, we were once again printing money in excess. The inevitable happened – the currency crashed and everyone thought that we were back in the bad old days when our domestic currency, the Zimbabwe dollar was destroyed and all savings wiped out.
However, this time the situation is quite different in that the Minister has forced the Government to live within its means and slowly stability and low inflation levels are returning as the fundamentals are addressed. The next step would be to create the conditions for growth, led by our export industries. This has proved to be difficult to get past the power brokers in the system. The reasons are many.
First we have to understand that a great many people in the State and the private sector were feeding off the system of exchange controls introduced by the Government in 2014. This entailed taking over US$3 billion a year from the earnings of all exporters and sweeping it into the Nostro (foreign currency) accounts of the Reserve Bank at the artificial rate of 1:1 with the US dollar. Initially this was not a problem as real market exchange rates were at that level. But as the State printed money, so the real exchange rates widened and when inflation started driving up costs, exporters were unable to cover their costs from the proceeds of sales.
Exports began declining seriously in late 2018 and are now well below what they were a year ago. Some exporters were threatening to close operations until this destruction of value was remedied. At the same time the availability of this very considerable sum of money (US$3 000 000 000) was available at the Reserve Bank at a third of its real value and the opportunities for corruption and allocations on a distorted basis expanded exponentially. Goods imported using these cheap dollars (fuel, wheat, cooking oil, pharmaceuticals and electricity) were available at a third of their real value and demand soared. Shortages and queues followed.
These conditions formed the backdrop to the monetary policy statement this week. I had hoped they would do the sensible thing – scrap exchange control and allow exporters to retain 100 per cent of their earnings, open up the money market to allow the formal sector to trade foreign currencies against the US dollar and the Rand and let the local currencies in circulation find their own level. In my view had this been done the currency would have traded at 2:1 or slightly more, inflation would have declined to below 5 per cent per annum in the third quarter of the year and shortages would have vanished. In addition, our exporters would suddenly be flush with cash and exports would expand rapidly, we would become a relatively low cost tourist destination and remittances would increase. Rapid overall economic growth would have followed.
It was not to be and what we got was a partial fulfilment of the above. The Governor allowed the float, but retained the sweep of exporters’ earnings into the Reserve Bank accounts. The only concession I saw was that the Bank would now pay 2,5:1 for this currency – reducing the massive destruction of value that the old system prescribed. He fixed the exchange rate at 2,5:1 against the US dollar and claimed he had enough reserves to hold the rate against this peg. This I doubt very much and I predict that the peg will not last long against real market forces.
But it is a massive step in the right direction and I am sure more reform is inevitable. The Minister described the statement as a real step forward, but I cannot believe he is totally satisfied and the outcome will prove him right.
What the Reserve Bank Governor did not do was to clear up just how we were going to meet the very real need for a new local currency for exchange purposes. Anyone visiting Zimbabwe is always astonished at the long queues for currency outside all Banks. This has to be dealt with and the only way to do so is to issue a new currency. I have argued that many times in recent months and almost always face opposition with people saying that the currency will collapse as it did in 2008. That is simply not true – our current currencies are in fact quite stable at about 4:1 and have remained so now for months.
Issuing a new currency about mid-year will strengthen the Reserve Bank and eliminate queues. It will also become a sound basis for pricing in local currency and make the multicurrency system redundant eventually. The key to success in that respect is the Ministers idea of a professional and independent Monetary Policy Committee to control and manage the new currency.
If we can get all this right, the people of Zimbabwe will do the rest. After all these years of corruption and failed policies, we deserve a new day.
Source: Officials feast on gold panners | Daily News MUTARE – Corrupt officials are feasting on illegal artisanal miners in Penhalonga, allegedly extorting money from them to avoid arrests, a leading anti-graft agency has said. Transparency International Zimbabwe (TIZ) official Tracy Mutowekuziva told journalists in Mutare this week that her organisation was pushing for the formalisation of […]
MUTARE – Corrupt officials are feasting on illegal artisanal miners in Penhalonga, allegedly extorting money from them to avoid arrests, a leading anti-graft agency has said.
Transparency International Zimbabwe (TIZ) official Tracy Mutowekuziva told journalists in Mutare this week that her organisation was pushing for the formalisation of the sector to plug the corruption loopholes.
“Unregistered artisanal gold miners in Penhalonga are easy prey for corrupt government officials and guards who are demanding money from them to allow them to continue with their activities.
“We are therefore pushing for the formalisation of this key segment in the mining industry and also assisting some of them to apply for claims and formalise their activities but even that too is difficult,” Mutowekuziva said.
Formalisation would also aid the enforcement of government regulations that also protect the environment easier, she said.
“Formalising their operations will not only help curb corruption but also help preserve the environment so we hope government will try to make the processes much easier for everyone,” the TIZ official said.
Artisanal gold mining activities in this area are contributing to the silting of downstream dams, choking of Odzi River with sand and the silting of Save River further down.
The artisanal miners are also forever a potent deforestation annoyance and, camping in the wild, they often ignite wildfires.
Hundreds of illegal miners are working along Mutare River as it meanders westwards as it leaves the Penhalonga dams that were left behind by DTZ-OZGEO (Pvt) Limited when it was forced to close by a government ban of riverbed mining back in 2013.
Efforts to end the illegal mining have not yielded fruit over the years with some working hardly 100 metres from a police post near Hartzel along the Nyanga-Mutare highway.
There are growing calls for the formalisation of artisanal mining.
Without it, there may not be another way around regulating their activities for the benefit of others who also depend on the river for their livelihoods.
Centre for Natural Resource Governance director Farai Maguwu earlier argued that government can regulate it better when they embrace instead of criminalise them.
He has also been pushing for the legalisation of artisanal mining which was outlawed upon the repealing of statutory instrument 275 of 1991 in 2006 during a nationwide campaign to end artisanal mining activities in an operation code named: Operation Chikorokoza Chapera.