Kudzanai Sharara Taking Stock
“Enhancing financial stability to promote business confidence.” This was the theme of the 2018 Monetary Policy Statement presented by Reserve Bank of Zimbabwe governor Dr John Mangudya on Wednesday this week.
Maintaining the stability of the financial system is a long-standing responsibility of any central bank in the world. A stable financial system is one in which financial institutions, markets and market infrastructures facilitate the smooth flow of funds between savers and investors as this helps to promote growth in economic activity.
The inability to facilitate the smooth flow of funds, by financial institutions, markets and market infrastructures, has been the Achilles heel to the country’s economy as both savers and investors bear the brunt of the country’s long-drawn monetary challenges. Savers have not only been failing to access their savings, but have seen those savings discounted for cash (hard currency).
Likewise, investors have also faced similar challenges as they could not repatriate their capital, capital gains as well as dividends. While the RBZ ranks repatriation of foreign investments under priority list number one, they still fall down the pecking order as other critical needs, such as fuel and energy imports, take top priority.
Using the definition given above which states that a stable financial system “is one in which financial institutions, markets and market infrastructures facilitate the smooth flow of funds between savers and investors,” it’s safe to say the country’s financial system is not stable.
The question to ask now is whether the RBZ, through the 2018 MPS has done enough to enhance financial stability in its efforts to promote business confidence. As said above, financial stability is reflected when there is smooth flow of funds between savers and investors, something which Dr Mangudya sought to solve with the latest MPS.
Using the goals set in Dr Mangudya’s MPS as a yardstick, the governor is still a long way in appeasing depositors, but has also come a long way in appeasing other investors if his measures are fully implemented.
The cash situation has not improved and from what Dr Mangudya said at the MPS presentation, there are no immediate solutions to make sure there is smooth flow of funds to savers. Dr Mangudya said the reality on the ground is that fundamentals which are critical to ensure currency reform are still weak or fragile.
“In future, when the said economic fundamentals become strong, the road map for currency reform in Zimbabwe will be predicated or tailor-made to be in line with two special features of “which are high credibility of monetary authorities and the existence of self-adjustment mechanism. In short the governor said there is no road map for currency reform as yet,” he said.
However, Zimbabweans — used to withdrawing cash from banks for decades — are still clamouring for increased access to cash and will view Dr Mangudya policies as a failure until they can access cash at the ATMs and in banking halls.
Currently approximately 96 percent of transactions are going through electronic systems including mobile money, but that has failed to appease depositors who continue to queue at banks, not only because they love using cash, but because the alternative is costing them an arm and a leg.
The RBZ, in an effort to improve the flow of money to savers has instead advocated for the increased use of plastic money — which is already at 96 percent — to reach a coverage of more than 80 percent of total retail transactions in the country. It has also put measures to curb use of multi-pricing system and refusal of plastic money — something that has seen savers/depositors continue to resist plastic money usage. Whether this is good enough to pacify concerns, only time will tell.
On the side of investors, the RBZ has put in measures to ring fence portfolio investment inflows by giving priority to capital before capital appreciation (profits) and dividends. The central bank has also put in place a $1 billion facility that is earmarked for the provision of guarantees to investments coming into the country. If fully and effectively implemented, these measures will enhance the smooth flow of funds and in the process boost investor confidence.
Other financial stability measures
The are other areas the bank still needs to keep an eye on in order to enhance financial stability and these include but are not limited to, control of the country’s domestic debt, curbing Government overdraft with the RBZ — now at $1,2 billion – to acceptable levels of $800 million, as well as increased access to foreign currency to a wider range of economic players.