Editorial comment: Good economic news from the statistics


the herald

gIn general, the economic news is improving a lot as inflation continues to decline, the black market exchange rate remains stable or falling, and official systems continue to converge.

The main news to come out of the Reserve Bank of Zimbabwe’s Monetary Policy Committee at the end of last week was that the monthly inflation rate had fallen for a second consecutive month, having more than halved to 12 .4%.

It’s still high, although the data was collected earlier in August and the month saw great price stability and even declines, so September should continue the trend.

But what is important is the trend. The monthly inflation rate, which has been falling since the introduction of currency auctions in mid-2020, with the initial drop being very large, had reached 1.6% in April last year.

It wobbled a bit, but then started to rise, plateauing around 5-6%. This ended the continued decline in the annual rate, which had fallen to just over 50%, and while this was concerning, the problem was considered manageable.

Then, after another 1 or 2% increase in February and March of this year, reaching 7% in February, this mountain appeared on the graph: 15.5% in April, 21% in May, 30.7% in June, 25.6% in July, and now 12.4% in August.

The top of the mountain was reached quickly and we are already sliding on the other side.

Some of the damage was done by those who mistakenly assumed the Q2 acceleration would hit all-time highs, despite much healthier fundamentals, and some wanted a wave of accelerated inflation since they had learned how to win. money when it happened.

In general, those who drove up the prices, those who had to pay the high prices, and even the economists blamed the black market exchange rate, the monthly inflation rate corresponding very closely to the rise in the black market rate, especially once the numbers are rounded.

The authorities reacted. The first batch of measures was largely about strengthening and enforcing the rules. So people were stopped from trying to price only in foreign currencies, banks found the Reserve Bank stretched thin, with 12 out of 16 showing soft loans to put it as politely as possible, and we had a crunch in the way accounts were shuffled on the Zimbabwe Stock Exchange which might not have affected the majority of investors but hit those who liked to treat it like a casino, and a slots casino in addition.

Then came the smart moves in the market.

The Monetary Policy Committee has raised interest rates to 200%, although there is a discount for production loans granted under very strict and enforceable conditions. Already, the game played by speculators of borrowing money and then playing on the black market had been curbed by banking discipline. Interest rates made it a loss.

The introduction of the Mosi-oa-Tunya one ounce gold coins was another innovative move. As of Friday, 6,799 had been sold, 95% of them in local currency. This means that over $6 billion, possibly around $6.5 billion, was withdrawn from local currency bank accounts and actually withdrawn from circulation.

It was loose money, money not needed at the moment, which would almost certainly have been used to enter the black market and increase the demand for US dollars.

That’s not so much gold sold in almost exactly one month, just 212 kg. So even if everyone wanted to cash them out after six months, it’s only a small fraction of the monthly purchases of gold from miners that the Reserve Bank continues to handle without any problems.

It also shows the type of money supply creation that had occurred in the private sector.

While the government had been very strict since the beginning of the Second Republic and the advent of what amounts to balanced budgets and exceptional discipline, without creating money, the private sector had experienced interesting booms in loans. banking, changing exchange rates and other ways to create money out of thin air.

And now the Ministry of Finance and Economic Planning, with all the muscle of President Mnangagwa pushing this ministry and the rest of the government, is making sure that those who supply the government are respectable and honest.

It’s a good idea to use local suppliers and contractors as much as possible, and in many cases the government’s faith has been vindicated as new jobs are created, new skills spread and money stayed in Zimbabwe.

But two sets of problems arose. Some contractors, while largely honest on pricing and such, headed to the black market as soon as they were paid to preserve value.

This was understandable, but undesirable and the government has put measures in place and offered alternatives that make this unnecessary, and the Reserve Bank’s Financial Intelligence Unit can verify that this has stopped.

Others, unfortunately, viewed the government as a source of money rather than a customer. Some accepted advance payments and never delivered, some were clearly using the black market rate when converting their prices to US dollars, and some it is now clear were almost doubling that black market rate just to rip off the government.

There is now a pause while the checks are done. We hope ministries and departments will begin vetting companies, contractors and suppliers that they have reason to believe have been square dealers, to minimize disruption to the honest.

It’s unfortunate that the good guys suffer along with the bad guys, but if everyone acts quickly, the good guys won’t suffer noticeably.

Then you can move on to the gougers and those who don’t even deliver. We suggest starting with the default that they cannot remain providers, then seeing if there are any special circumstances or major, immediate reforms that might allow a return, but with one final caveat.

As the economy, and therefore the tax base, grows, the government will spend more and more money in its capital account each year, primarily on infrastructure. These capital expenditures constitute the second block of funds budgeted after compensation and show the importance given to investment.

That’s a lot of money, but every dollar needs to be spent properly, and those who receive that money need to provide good value for every dollar.

If we need a permanent system of controls in place and continued tighter control over spending, let’s do it. A small group of investigative financial officers can earn their salaries by preventing fraud, and we have already suggested that the Auditor General could probably, with more resources, run an ongoing audit process to catch dishonest people before they steal a lot.

The main points of the current improvement are that we make extensive use of market forces to control the market, and sound management to control crooks. This makes the changes permanent.

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