Dollarisation was a big mistake as it took away the country’s monetary autonomy and made industry uncompetitive, Finance and Economic Development Minister Mthuli Ncube said yesterday. Besides, bringing enough US dollar bills was costing the country over US$300 million annually, making the dollarisation process unsustainable.
Although the multi-currency system brought short-term
stability after hyperinflation around 2008, it largely stifled growth as the
country could not utilise monetary instruments to influence economic activity
and gradually lost competitiveness compared to major trading partners.
Last June, the authorities took a decisive step to address
the anomaly, by re-introducing the local currency. The Zimbabwe dollar was re-introduced through
Finance Act No.2 of 2019 and Statutory Instrument 212 of 2019, which provides
for exclusive use of the Zimbabwean dollar to settle all domestic transactions
as well as penalties for failure to do so.
However, adjustments have since been made to allow for
United States dollar transactions (free funds), alongside the Zimbabwe dollar,
through Statutory Instruments 85, 185 and 196.
“Our biggest mistake was making the United States dollar
our main currency of reference. By taking away the Zimbabwe dollar we destroyed
industrial capacity,” he told delegates attending a post-Budget breakfast
meeting in Harare. Competitiveness comes from having your own currency.”
Constrained production during the multi-currency era meant
that there was an increase in import dependency, which needed to be sustained
by billions of US dollars to pay for essentials that include food, fuel,
electricity, raw materials, equipment and medicine.
With the economy structurally incapacitated to generate
enough forex to sustain such a huge appetite for imports, the authorities were
left with little room to manoeuvre, thereby necessitating the re-introduction
of the Zimbabwe dollar.
Secretary for Finance George Guvamatanga, concurred with
Minister Ncube, saying the reintroduction of the local unit will drive the
economy forward.
“We will build this economy on the basis of the Zimbabwe
dollar. The local currency will anchor this budget.” Both fiscal and monetary
authorities have been making a concerted effort to ensure the success of the
Zimbabwe dollar.
Experts say a successful de-dollarisation strategy should
comprise a comprehensive mix of structural reforms that address the
macroeconomic environment to ensure a positive fiscal balance, positive current
account balance and improvement on the global debt position.
And through the outgoing Transitional Stabilisation
Programme (TSP) and other measures such as the Reserve Bank of Zimbabwe’s
foreign currency auction system, stabilisation of the Zimbabwe dollar is
already apparent. But the move to bring
back the local unit was not without negative consequences, as the process
resulted in a loss of value to savings for both business and individuals.
However, last week the authorities made the first move to
address anomalies arising out of de-dollarisation.
Presenting the 2021 National Budget, the Finance Chief said
small and vulnerable households with deposits less than US$1 000 in the bank at
conversion will be compensated.
“As part of a broader reform process under the Transitional
Stabilisation Programme, Government through the Central Bank introduced market
determined exchange rate through the Monetary Policy of (SI 33 of 2019) on 20
February 2019. This entail transition from exchange rate of US$1: $1, initially
to US$1: $2,5 and thereafter determined by the interbank market activities. This transition resulted in currency losses
to small and vulnerable households with deposits less than US$1 000 in the
bank. The movement in the exchange rate from US$1:$1 to US$1: $2,5 resulted in
a loss for such depositors,” he said.
“Therefore, Government has made a decision to compensate
the small and vulnerable depositors who had US$1 000 and below, for the
exchange rate movement loss from US$1: $1 to US$1: $2,5, with resources
equivalent to US$75 million. The resources will be administered by the Deposit
Protection Corporation (DPC).
He added that this compensation will also extend to the
country’s pensioners. Herald
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