PERSISTENCE Gwanyanya, a Reserve Bank of Zimbabwe member of the monetary policy committee, has encouraged councils to underwrite the local currency to restore its value.
“I’m seeing the rates are converging. So, the monetary policy statement is coming at a time when the rates are converging. So, we expect you guys to also play your part in underwriting the currency by the reduced monetary expansion, which is a tight monetary policy, and super demand for the development dollar, we can stabilise our currency,” said Gwanyanya while speaking at the Local Authorities Convention held in Masvingo last week.
The convention was organised by the Institute of Chartered Accountants of Zimbabwe.
“We are waiting for the monetary policy. It should be able to equilibrate the two markets, the parallel markets and the official markets,” he said.
The local unit has lost 95% of its value since December last year, according to the International Monetary Fund.
Gwanyanya believes local authorities were underperforming on their mandate to contribute to the gross domestic product (GDP) due to the instability of the local currency.
“I think we can concur that the local authorities’ contribution to the GDP is very small,” he noted.
“Unlike in other countries where local authorities contribute significantly to the GDP, in terms of infrastructure development, and social service delivery, our situation here is dire because the infrastructure which is managed by local authorities is decaying, and social services being compromised daily.
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“The contribution of the local authorities has arguably fallen significantly. One would ask the question, why are local authorities not performing? I think the answer is commonly shared by everyone here, and most of us in the economy.
“Other factors are outside their control, but the main ones are political factors and economic factors. I am not qualified to comment on political issues, but on economic issues.”
Gwanyanya assured delegates that monetary authorities were working flat out to permanently stabilise the Zimbabwe dollar.
“Very soon, we should be having our monetary policy statement, which I’m very sure and hopeful will deliver the aspiration of current stability,” he promised, indicating that a more realistic GDP estimation is US$40 billion.
“Our economy has changed structurally and there is need to rebase our economy. Our economy has become increasingly informalised,” he noted. “I think our GDP, though still low, I would like to think that at US$47 billion, the GDP statistic is more realistic if we look at the exports. Last year was around US$7,2 billion and the export-to-GDP ratio is normally around 19%.
“If you extrapolate using those statistics, you find out that our GDP can be estimated at around US$40 billion.”
He said the confidence issues can also be addressed by the conduct of the monetary policy.
“They say, everywhere and anyway, inflation and volatility are a result of the monetary issue, but let me tell you I see quite a lot of the market confused,” he said.
He insisted that previous government monetary policies did not contribute to the failure of the local currency and emphasised that it was a legacy issue from the previous government.
“I need to be very careful not to pre-announce the monetary policy statement. But I indicated the monetary policy statement, I’m not very worried about what it contains and, its contribution to resolving the mandatory instability issues of the country,” Gwanyanya said.
“I want to start by saying the instability and current challenges we are experiencing with current policies are not a result of the mismanagement of physical and monetary issues by the current regime.
“When we have a high level of informatisation and industrialisation in the low levels, you would not expect your currency to be strong, especially when you have a history of hyperinflation. It’s a legacy matter.”
Gwanyanya also attributed the depreciation of the local currency to its rejection by Zimbabweans.
“They take the monetary issue as the lining of the printed price. Yes, it could be an issue because money is printed in two ways, excessive pay discretion and borrowing by the government.
“However, the rejection of the Zimbabwean dollar is also equivalent to monetary interest. Because the moment every one of us rejects the Zimbabwe dollar in the markets, you are putting pressure on the US dollar. And as a result, you see the depreciation and accelerated depreciation of the local currency,” he added.
