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Generally, the economic news is getting a lot better as inflation continues to fall, the black market exchange rate remains stable or falling, and the official systems continue the convergence.
The main news that came out of the Monetary Policy Committee of the Reserve Bank of Zimbabwe at the end of last week was that the monthly inflation rate had fallen for a second month running, more than halving to 12,4 percent.
This is still high, although the data was collected earlier in August and the month has seen a lot of price stability and even some falls, so September should be continuing the trend.
But what is important is the trend. The monthly inflation rate, falling since the introduction of the foreign currency auctions in the middle of 2020, with the initial fall being very large, had reached 1,6 percent by April last year.
It did oscillate a bit, but then started inching up, reaching a plateau around 5 percent to 6 percent. That did see the end of the continuing fall in the annual rate, which had dropped to just over 50 percent, and while that was worrying the problem was considered containable.
Then after another bout of inching up one or two percent in February and March this year, reaching 7 percent in February, we had that mountain appear on the graph: 15,5 percent in April, 21 percent in May, 30,7 percent in June, 25,6 percent in July, and now 12,4 percent in August.
The mountain peak was reached quickly and we are already sliding down the other side.
Some of the damage was caused by those who assume, wrongly, that the acceleration in the second quarter was going to go to historical peaks, despite the far sounder fundamentals, and there were some who desired a spate of accelerated inflation since they had learned how to make money when this happened.
Generally those pushing up prices, those having to pay the pushed-up prices, and even the economists blamed the black market exchange rate, with the monthly inflation rate matching the rising black market rate very closely, especially once numbers were rounded off.
The authorities reacted. The first batch of measures were largely tightening and enforcing rules. So people were stopped from trying to set prices only in foreign currency, banks found the Reserve Bank breathing down their necks, with 12 of the 16 exhibiting some slack lending to put it as politely as possible, and we had tightening of how accounts were churned on the Zimbabwe Stock Exchange, which could not have affected the majority of investors, but did hit those who liked to treat it as a casino, and a slot machine casino at that.
Then came the smart market moves.
The Monetary Policy Committee pushed up interest rates to 200 percent, although there is a discount for production loans granted under some very tight and enforceable conditions. Already the game played by speculators of borrowing money and then playing the black market had been dampened by bank discipline. The interest rates made it a loss maker.
The introduction of the one ounce Mosi-oa-Tunya gold coins was another innovative move. By Friday 6 799 had been sold, 95 percent of them for local currency. This means more than $6 billion, possibly around $6,5 billion, has been removed from local currency bank accounts, and effectively removed from circulation.
This was loose cash, money not needed right now, that would almost certainly have been used to enter the black market and drive up demand for US dollars.
This is not that much gold sold in almost exactly a month, just 212kg. So even if everyone wanted to cash them in after six months, it is only a small fraction of the monthly gold purchases from miners that the Reserve Bank continues to handle without any hassle.
It also shows up the sort of money supply creation that had been going on in the private sector.
While the Government had been very tight since the start of the Second Republic and the advent of what amounts to balanced budgeting and exceptional discipline, with no creation of money, the private sector had seen some interesting booms run on bank loans, shifting exchange rates and other ways of creating money out of nothing.
And now the Ministry of Finance and Economic Planning, with all the muscle of President Mnangagwa prodding that ministry and the rest of the Government, is making sure that those who supply the Government are respectable and honest.
It is a good idea to use local suppliers and contractors as much as possible, and in many cases the Government’s faith has been justified as new jobs are created, new skills spread and money kept inside Zimbabwe.
But two sets of problems did arise. Some contractors, while being largely honest on pricing and the like, were moving into the black market as soon as they were paid to preserve value.
This was understandable, but undesirable and the Government has put in measures and offered alternatives that make that unnecessary, and the Reserve Bank Financial Intelligence Unit can check up that it is has stopped.
Others, regrettably, saw the Government as a source of money, rather than as a customer. Some took advance payments and never supplied, some were clearly using the black market rate when converting from their US dollar prices, 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 checks are made. We would hope that ministries and departments will start their checks with the companies, contractors and suppliers who they have good reason to believe have been square dealers, to minimise the disruption to the honest.
It is unfortunate that the good suffer with the bad, but if everyone moves swiftly the good will not suffer appreciably.
Then we can move into the gougers and those who do not even deliver. We would suggest starting with the default that they cannot remain suppliers, and then see if there are special circumstances or major and immediate reforms that could allow a return, but under a final warning.
As the economy, and so the tax base, grows the Government will be spending more and more money each year on its capital account, mainly on infrastructure. This capital spending is the second largest block of budgeted funds after compensation and shows the importance placed on investment.
It is a lot of money, but every dollar must be spent properly, and those receiving this money need to deliver good value for every dollar.
If we need a permanent system of checks in place, and continuous tighter control of spending, let us have it. A small group of investigating financial officers can earn their pay by preventing fraud, and we have already suggested that the Auditor- General probably could with more resources run a continuous audit process to catch the dishonest before they steal very much.
The important points in the present improvement is that we are using very largely market forces to control the market, and sound management to control the dishonest. This makes the changes permanent.
Online Reporter