RESERVE Bank of Zimbabwe governor John Mangudya had a torrid time at the pre-budget seminar for legislators in Bulawayo last week when he was grilled over currency problems bedevilling the country.
The MPs told Mangudya that the government’s insistence that the United States dollar was trading at par with the bond note was behind the latest economic upheavals that have seen a number of businesses demanding forex for payments.
Legislators said it was high time the government scrapped the bond notes introduced in 2016 to deal with cash shortages.
However, Mangudya (JM) told standardbusiness reporter Mthandazo Nyoni (MN) in an interview that the surrogate currency had been a success.
He said the shortage of foreign currency could not be attributed to bond notes. Below are excerpts from the interview.
MN: Did the Reserve Bank of Zimbabwe (RBZ) not anticipate the current foreign currency crisis and if it did, what measures were taken to alleviate it?
JM: I thought I made it abundantly clear that the fiscal imbalances are exerting demand pressures on foreign currency in as far as the increased expenditure is increasing consumer spending that needs forex.
What is therefore required — as has been said by the president — is to reduce fiscal imbalances.
The Reserve Bank is doing its best to put in place financial structures to supplement forex receipts from exports and other sources.
MN: According to pharmacists, the RBZ has not been allocating them forex to replenish their stocks for several months now. What forced you to stop the allocations? Is it true that money was diverted to fund Zanu PF’s imports of cars and campaign regalia?
JM: We keep on supporting the pharmacists. We allocated $10 million for medicines during the last week of October 2018 in both cash and letters of credit. We are, therefore, not aware of the several months you are referring to.
MN: Is the chaos in the currency markets not an indication that the bond notes have failed?
JM: As already advised, bond coins and bond notes in circulation in the economy account for around 4,5% of money supply.
So it’s obvious that the shortage of forex can’t be attributable to bond notes, but to low productivity, higher demand for forex and the fiscal imbalances.
Bond notes are an export incentive whose impact has been very positive in increasing exports by more than 34% in 2017 and 36% during the first 10 months of this year. Therefore, bond notes did not fail.
MN: To what extent did excessive government expenditure since November last year contribute to the unfolding economic crisis?
JM: The economy has been expanding at a faster rate than it has been creating forex required to sustain the increased demand for goods and services.
MN: Some allege that the RBZ is a big player on the foreign currency parallel market. What is your comment on that?
JM: The Reserve Bank does not participate and does not have the appetite to participate on the foreign currency parallel market.
MN: When will the conversion of the RTGS balances to US$ promised by the government start?
JM: The RTGS platform was put in place in April 2009 to domestically settle US$ denominated RTGS balances whilst foreign payments are settled through corresponding banks.
The purpose of providing foreign exchange at 1:1 to cater for essential products is designed to stabilise prices and to make prices affordable. That way also means that the RTGS balances are convertible to US dollars.