adminNgoni Dapira Business Correspondent
ECONOMIC analysts have expressed different sentiments about Finance and Economic Development Minister, Cde Patrick Chinamasa’s recent views on the state of the economy since the introduction of the multi-currency regime in 2009. In his presentation to the Portfolio Committee on Finance and Economic Development on Monday in Harare, Minister Chinamasa said the migration from hyperinflation to multi-currency did a lot of damage to the economy.
He argued that the United States dollar had been undervalued in Zimbabwe and this was causing price distortions in the economy.
The minister said dollarization led to the increase in the cost of commodities and raised salaries to unsustainable levels while reducing demand.
Zimbabwe National Chamber of Commerce national president, Mr Hlanganiso Matangaidze said he concurred with the Finance Minister and hopes Government will be pragmatic about the return of the Zimbabwean dollar in the event Foreign Direct Investment fails and cash flows continue to diminish.
He said Zimbabwe is currently facing a banking sector and liquidity crisis which needs realism.
“I give all due respect to the Finance Minister for being pragmatic and opening debate on a very pertinent issue that the nation should be prepared to talk about soon.
“The Reserve Bank of Zimbabwe and the Finance Ministry are currently looking for alternative sources to respond to the financial crisis, but if that fails what next?
“There is need for more debate on the possible return of the Zimbabwean dollar if access to FDI and cash flows into the country continue to hit a brick wall.
“What I suggest is to have detailed research on ways to tally the actual value of the US dollar in Zimbabwe.
“When we talk of the Zim dollar people clamour because of fear of the unknown and past experiences, but what most people do not know is that if we fail to get better cash flows in the country we will wind up back where we were before 2009 under dollarization,” said Mr Matangaidze.
An economist Mr Kipson Gundani said Minister Chinamasa was hinting at a possible return of the Zimbabwe dollar instead of tackling the fundamental ailments affecting the economy.
“The true position is that our economy is not well due to the lack of inflow of money either as FDI or credit flows, of which the balance is scaled in favour of imports than exports.
“We are in a free economy market system and prices are controlled by the market forces. What we need are regulations and not controls, of which before dollarization during the hyper-inflation Zim dollar era, Government used to heavily rely on controls, which would only buy time.
“I think Minister Chinamasa is contemplating those days of controls, but honestly the Zimbabwe dollar right now will not sustain. We can only go back when we have certain benchmarks. Right now our fundamentals are weak and local currency is not feasible,” said Mr Gundani.
Minister Chinamasa early this year assured the nation a local currency would only be introduced at an ideal time.
A development economist, Mr Farai Macheze said Zimbabwe is entering a dangerous cycle and the economy is already in dire straits as shown by stagnation, huge capital and current account deficits as well as de-industrialization.
Mr Macheze added that Government’s employment costs have been at the centre of debate especially since dollarization, with recent reports revealing that Zimbabwe’s wage bill accounts for 75 percent of total expenditure compared to an International Monetary Fund recommended average of 40 percent.
“Whist dollarization brought inflationary stability it has also eliminated the possibility of financing the fiscal deficit, which compounds the current liquidity crisis because, without this possibility of public financing, the government will have to look for fallback sources of revenue.
“With the multicurrency system, the government has given up control of the money supply which regulates and restricts any stabilizing response of fiscal policy to adverse extrinsic and intrinsic unpredictability,” said Mr Macheze.
The dollarization of the economy in 2009 halted the hyperinflation, but some analysts have said the policy also reduced the country’s economic competitiveness.
Minister Chinamasa said salaries that were introduced with the advent of the multi-currency regime were too high, resulting in many companies falling months behind in paying workers.
“The migration from hyperinflation to multi-currency did a lot of damage to our economy…
“It pitched our cost structure too high and unsustainable. It’s like we devalued the US dollar, where in America a dollar can purchase four cokes, in our case it can only purchase two or one in some cases depending on whether it’s canned or not or where you are buying it from,” said the Minister.
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