MPS seeks to stabilise, produce and create value

11 Aug, 2017 - 06:08 0 Views
MPS seeks to stabilise, produce and create value Dr Mangudya

eBusiness Weekly

Dr John P Mangudya RBZ Governor
The Monetary Policy Statement (MPS) emphasises the need to change the narrative from one focussing on cash shortages to one which puts foreign exchange shortages at the forefront in order to come up with a common understanding of the challenges besetting the economy. This change of narrative is necessary to highlight the Zimbabwe’s productivity crisis or economic underperformance which is epitomised by the cash shortages.
This is essential for the nation to change its mind-set to focus on rebalancing the economy through putting in place policy interventions that are desirable to produce and create value — foreign exchange, increased productivity and employment for the economy and to put the necessary measures that promote an investor friendly business environment for a private sector led growth.
In this regard, the MPS highlighted the need to increase production and create value, boost export earnings and restore market discipline. The Bank is, therefore, innovatively intervening to shore up production through unlocking the local liquidity in RTGS balances to create nostro capacity by targeting financial support to various productivity sectors of the economy.
The MPS recognises that the country has remained largely isolated from accessing international financial markets, hence the need to be innovative in generating foreign exchange and wisely utilising available foreign exchange resources in a manner that promotes local production and generating foreign exchange for self-sustenance.
In this regard, the bank introduced the export incentive scheme which has already seen export receipts increase by 14 percent. The export incentive scheme will be extended by an additional $300 million, backed by a facility arranged with Afreximbank, to achieve a seamless and flawless support for the exporters of goods and services. To ensure equity in allocation of scarce foreign exchange receipts, earnings from platinum and chrome shall be treated in the same manner as gold, diamonds, tobacco and cotton.
The bank is putting in place facilities to stabilise the economy whilst working on unlocking value from local financial RTGS balances. It is in this context that the bank is putting in place a Nostro Stabilisation Facility which has been negotiated with Afreximbank to the tune of $600 million, to ensure the availability of foreign exchange after the closure of the tobacco selling season in August 2017.
In addition, the bank is establishing a Portfolio Investment Fund to facilitate the efficient repatriation of portfolio related funds of foreign investors, especially on the Zimbabwe Stock Exchange.
In a bid to reduce liquidity risks on the interbank market, the bank’s lender of last resort window, operating under the African Export-Import Bank Trade Backed Securities (Aftrades), has been increased from the initial $200 million to $400 million and will mature in 2019.
To date, the facility has managed to bring stability in the banking sector, as banks are able to borrow from this facility to support their liquidity requirements.
The two great forces at play in the economy, namely the fiscal deficit and gross market indiscipline should be addressed decisively.
These two forces worsen the situation in that the fiscal deficit results in the creation of local dollars (or excess demand for foreign exchange) in the form of RTGS balances which are not matched by foreign exchange receipts, whilst market indiscipline withdraws foreign currency from the system, thereby undermining the efficient circulation of money.
This situation requires adherence to self-discipline, reducing government expenditure of sustainable levels and promoting investor friendly policies and export generation strategies.
The Reserve Bank is advocating deterrent penalties for dealing with market indiscipline, similar to those for stock theft which are up to an imprisonment period of up to nine years for stealing a beast.
It is against this backdrop that the MPS also calls for the acceleration of the implementation of structural reforms that are needed to create a conducive business environment for private sector led-growth.
Structural bottlenecks inhibitive of productivity across the economy, which include high costs of production in various sectors and other constraints are currently being addressed by government through the on-going ease of doing business reforms.
The re-engagement with IFIs with a view to reduce the perceived high country risk and end the country’s isolation from international financial markets remains a top priority of the bank.
In this regard, the MPS reaffirms the position of Government that the country has since secured adequate resources with which to clear arrears to the World Bank and African Development Bank, respectively.
The payment will, however, be done in synchrony with the implementation of key structural reforms to ensure that the country derives optimum benefits from the repayment of the arrears.
The localisation of production, coupled with enhanced self-discipline and promotion of exports will steer the economy to a sustained growth trajectory. The need to produce and create value to sustain the turnaround of the economy remains a strategic imperative that cannot be over-emphasised.

Share This:

Sponsored Links

Survey


We value your opinion! Take a moment to complete our survey

This will close in 20 seconds