JOHN Mangudya took over the reins as Reserve Bank of Zimbabwe (RBZ) governor in 2014 preaching the gospel of going back to basics.
He exited the stage last week bruised after missteps some man-made and others outside the remit of RBZ that would haunt any Zimbabwe central bank governor.
The back to basic policy was premised on nine anchors — respect of rule of law; respect and love of each other as patriotic Zimbabweans; respect of the environment, policy clarity, consistency, transparency and predictability and a nurturing positive business culture. It was also anchored on nurturing productive work ethics and a culture to take responsibility; a visible fight against corruption, smuggling and profiteering; inculcating a culture of paying (bills, loans, duties); and good citizenship.
This also entailed the central bank going back to its core principles of being a banker to government; administrator of the national payment system; regulator of financial institutions; manager of exchange control, supervisor of bank use promotion and suppression of money laundering; lender of last resort and policy advisor to government.
Banker and financial advisor to government
RBZ resumed its role as banker to the government from July 2014.
In 2018, Finance minister Mthuli Ncube said the overdraft with the central bank was US$2,3 billion as at the end of August 2018 against a statutory limit of US$762,8 million.
Was the central bank giving the government sound advice? If so was the advice thrown out for political expediency?
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Culling the NPL imbroglio
In his maiden monetary policy statement (MPS), Mangudya said we should inculcate a “culture of paying bills, loans and duties.”
That culture of not repaying loans had become so entrenched that most of the banks that collapsed had the same ailment — insider loans were non-performing. So huge were the loans that there were fears that banks would cut back on the lending required to oil the economy.
Former Finance minister Tendai Biti tried unsuccessfully during the GNU era to come up with a special purpose vehicle to take over bad loans, taking a cue from Nigeria’s Asset Management Company.
That vehicle, the Zimbabwe Asset Management Company (Zamco), was established in 2014 to free the balance sheets of banks. The default rate was 20,45% meaning that for every dollar borrowed, about 20 cents was not repaid.
Mangudya told a parliamentary portfolio committee that without Zamco, the economy would have collapsed.
In the quarter to September 2023, the aggregate NPL ratio was 2,34% against an international benchmark of 5%.
Forex management
The import priority list, forex retention thresholds, auction system and interbank market were some of the measures introduced by the central bank to manage the scarce foreign currency.
The import priority list had a danger of giving the forex to those that have not worked for it.
The retention threshold which was necessitated by the need to build forex reserves has not been well received, more so when the gap between the official and the parallel market rate continue widening.
The threshold was standardised to 75% in which exporters would convert the remaining 25% using the official exchange rate.
The auction system was reintroduced in 2020 at which companies would buy foreign currency for their operations. The system failed for a number of reasons. First, it was not a real auction system in which the highest bidder wins. Rather it was a controlled one.
Second, the central bank took time to allot the winning bids after companies had already paid the local currency equivalent.
Beneficiaries also failed to pay the local unit. The auction system became a drag as the gap between the platform’s rate and the parallel market one widened such that the former fuelled rent-seeking behaviour. In the end the auction failed to act as a rate discovery platform. Rather, it became an allocative platform.
Gono’s quasi-fiscal ghost haunts Mangudya
Mangudya’s predecessor Gideon Gono was accused of engaging in quasi-fiscal operations, blamed for fuelling hyperinflation. Gono at the time said they were necessary to deal with the extraordinary challenges confronting the economy. He got the backing of late former President Robert Mugabe who rebuked then Finance minister Herbert Murerwa after he had called for an end to the quasi-fiscal operations.
“They have this word they like using quasi, quasi. But I tell them that this is the expenditure that we need. We are under sanctions and there is no room for the type of bookish economics we have at the Finance ministry,” Mugabe said then.
Throughout his tenure, the central bank was accused of engaging in quasi-fiscal operations, a charge Mangudya disputed. Last year, Finance minister Mthuli Ncube said RBZ’s external liabilities related to quasi-fiscal operations would be transferred to the Treasury.
In a recent statement after the annual Article IV consultation, the International Monetary Fund said the transfer represented an important step in addressing fiscal pressure. However, the global lender said the larger-than-anticipated costs of servicing these obligations would open a financing gap in the 2024 budget.
Fall guy
Mangudya said his first MPS was intended to spell out the necessary bold, robust and pragmatic monetary policy measures that “we believe are needed to pull the economy from the situation it is now”, guided by the philosophy that when a “central bank wins or loses a fight, it is the wider society which wins or loses”.
Under his watch, the central bank ensured there was a strong banking sector, rid of non-performing loans after the balance sheets were cleaned by the transfer of bad debts to Zamco.
The central bank’s measures could not defend the local currency. The depreciation of the local currency could also be attributed to government's misdemeanour such as financing infrastructural projects in local currency and allowing its suppliers to overcharge on services rendered and then offload the proceeds on the parallel market.
When the politics is wrong after a disputed election, coupled with sanctions, corruption and the perceived country risk, the biggest casualty is the local currency.
In the end, Mangudya became the fall guy of government's economic policy failure.
