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Prosper Ndlovu Business Editor
THE Reserve Bank of Zimbabwe has advised financial institutions and the government to channel funding to serious and productive economic players only for maximum impact to be achieved.
The habit of trying to provide resources to everyone is not sustainable and would not bring the desired turnaround in a highly resource-constrained economy, the apex bank governor John Mangudya said in his mid-term monetary policy statement released on Wednesday.
“In order to enhance production across all sectors of the economy, the Reserve Bank is of the view that it’s now high and appropriate time that only serious and productive producers should be assisted or granted resources by financial institutions and/or government,” he said.
“This is critical to promote the efficient use of scarce financial resources and for debt sustainability purposes.”
Mangudya said it was more ideal, for instance, to support 2,000 serious maize farmers to produce 1.2 million tonnes than spreading resources to those who wouldn’t do anything.
He said A1 and communal farmers, if carefully selected and funded would produce enough to feed the nation.
Mangudya said it was high time the country identified ‘low hanging fruits’ in well managed productive sectors like manufacturing, mining and tourism, which deserve funding.
Such an approach “would produce wonders”, he said.
“We therefore call upon both the financial institutions and the government to deliberately target resources to serious and or productive beneficiaries to encourage meaningful production across all the sectors of the economy as opposed to trying to provide too little to everyone with minimum impact,” said Mangudya.
The governor said loss of monetary autonomy and lack of exchange rate flexibility to enhance export competitiveness has brought to the fore the need for fiscal and internal devaluation as viable policy options.
Internal devaluation entails that a country that cannot devalue its nominal exchange rate, can gain competitiveness and promote export performance through streamlining domestic costs of production.
Mangudya said measures to enhance competitiveness through reduction in production costs would result in “depreciation in the real exchange rate in a manner that promotes exports”.
“This is particularly important as Zimbabwe’s implied real effective exchange rate is currently over-valued by an estimated 45 percent. This largely reflects the progressive appreciation in the US$ underpinned by strong economic recovery in the US and accommodative monetary policy measures adopted in most Euro-zone countries,” he said.
The governor said the nominal appreciation of the US$ against major currencies has had concomitant effects on the real effective exchange rate, a development that has continued to undermine the country’s export competitiveness.
Under the multiple currency system, he explained, Zimbabwe cannot effect nominal exchange rate adjustments to promote export competitiveness.
“In this regard, fiscal and internal devaluation become potent tools at the authorities’ disposal to influence export competitiveness. Within the context of fiscal devaluation, value added tax (VAT) can be imposed on selected imports that have close local substitutes,” said Mangudya.
He said the two measures combine to effectively devalue the real effective exchange rate in order to promote competitiveness and narrow current account deficits in a revenue-neutral manner as has been the case in some Eurozone countries.
“In this respect, fiscal and internal devaluation measures should be seriously considered in Zimbabwe to improve the cost of doing business and export competitiveness,” he added.
Mangudya stressed the need to develop a robust, well structured bond market as this plays a critical role in mobilising long term financing for government, quasi government and the private sector needs.
He said this was important as the productive sectors of the economy require long-term funding to replace antiquated and obsolete machinery and employ modern cost-effective production techniques that enhance production and product competitiveness.
“A vibrant and liquid bond market will also facilitate the development and deepening of the domestic financial system,” said Mangudya.
The governor expressed concern over the level of indebtedness of government to public enterprises and vice versa.
He said great effort was required to address this gridlock as it was affecting economic progress.
“Most entities, including the government, are behind with their statutory obligations, trade payments and bank loan repayments because they owe each other and are waiting to be paid by the others and vice versa.
“There is therefore great need to come up with netting payment systems resolution in order to cleanse the historical obligations of all affected entities including the government. This needs urgent attention before the payment gridlocks escalate to unsustainable levels,” said Mangudya.
Online Reporter