BUSINESS leaders have questioned the government’s tight monetary policy thrust to preserve the value of the local currency, the ZiG, at a time when it is defaulting in paying contractors, NewsDay Business can report.
The query by business comes as the official exchange rate has been relatively stable in recent weeks.
However, the government has been accused of deliberately limiting liquidity in the market by delaying in paying its contractors to maintain “exchange rate stability”.
Typically, a government limits liquidity without causing a cash crunch by employing a combination of policies with a tight monetary policy stance.
These include increasing interest rates, market determined exchange rate, selling government bonds, cutting wasteful spending and adjusting reserve requirements, while ensuring sufficient liquidity for essential economic functions.
This is why each time the government injects liquidity into the market, the local currency depreciates.
“On the issue of liquidity the government is pursuing, there is a tight monetary policy, which is not a wrong thing, but then there is the fiscal side, where the government contracts and it does not pay,” CEO Africa Roundtable chief executive officer Kipson Gundani told NewsDay Business.
“That is an area now to do with the fiscal deficit. So, there is also a misnomer in this economy where we think the budget is balanced, but in actual fact it is not. What is balanced are cash flows, but we are balancing them off by not paying somebody.”
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He said it now meant that the government was not contracting domestic debt, but at the expense of local players.
“This means that the moment those contractors are paid, the exchange rate is likely to move,” Gundani said.
He noted that some contractors had not been paid by government for the work that they did.
“We are in a period where the exchange rate is relatively stable for the last five months,” Gundani said.
“We, however, have members that have come to us asking for us to represent them on the non-paid services and goods that have been offered to the government, some as old as six months and some even more.”
“If the money the government is going to use to pay is money that is earned, not printed, there will be no consequence on the market,” Gundani said.
He said that as long as the government stopped printing money to pay off that debt, the exchange rate would remain stable.
“So, if this money is earned through tax and everything else, that is fine, there will be no consequences, but if they run the printing machine, then there will be consequences.
“If you speak to them, they will tell you that the interbank rate is market determined, but I want to ask you a question, do you believe so? So, it is a controlled rate, but this is the sincerity issue now that is lacking in the market to say we all know that this is a controlled exchange rate.”
Gundani said if the official forex rate was market-determined, it would be closer to the parallel market rate. The ZiG was yesterday trading at 26,6521 to the United States dollar on the interbank market. On the parallel market, one United States dollar was fetching between ZiG33 and ZiG36.
