Govt calls for calm, assures of economic stability

The Chronicle

Nqobile Bhebhe, Senior Business Reporter

GOVERNMENT has called for calm in the wake of recent price increases saying the measures being implemented on the fiscal and monetary fronts will ensure economic stability and cushion citizens from the negative shocks.

In a ministerial statement presented in Parliament on Thursday in response to concerns over recent price escalation, Finance and Economic Development Minister, Professor Mthuli Ncube, said speculative expectations of higher inflation and future exchange rate depreciation were the biggest drivers of exchange rate volatility and the ultimate price increases.

This is despite the stable economic fundamentals and the economic reform milestones achieved so far, which have seen Zimbabwe scaling up its domestic production and achieving a 7,8 percent Gross Domestic Product growth last year, attracting more investment, driving more infrastructure development and increasing its export earnings. 

While acknowledging the market shocks induced mainly by the ongoing Russia operation in Ukraine, which has disrupted global supply chains, Prof Ncube said the exchange rate volatility induced by speculative behaviour by some influential economic actors, has escalated the situation.

President Mnangagwa

This has prompted the Government to take drastic measures, which were announced by President Mnangagwa last weekend, to try and restore sanity and enhance confidence in the use of the local currency.

These included temporary freezing of lending by banks to entities and individuals, liquidation of the surrender portion of export proceeds to be settled at the willing buyer willing-seller exchange rate, suspension of third-party country payment on foreign payments and fostering discipline in the stock market by prohibiting inter account transfers, among others.

“Inflation is now being driven by expectations of higher inflation and exchange rate depreciation in the future,” said Prof Ncube.

“Prices of goods and services are being quoted with a premium.

This results in a self-fulfilling upward movement in general prices of goods and services in the economy.”

He said the Government together with the central bank has adopted several policy measures to stabilise the currency and lower inflation, including among others fiscal consolidation and restraining growth in reserve money.

While the global economy is also under pressure, the Government is convinced the recent exchange rate movements were being driven by negative sentiments and indiscipline of economic agents as opposed to economic fundamentals, said the minister.

As such, he said the raft of policy measures announced by the President last Saturday will deal with the unwarranted and sustained depreciation of local currency and tame the upward inflation spiral.

Further, Prof Ncube said the measures are meant to restore macro-economic stability, boost confidence in the economy, increase the appeal of the local currency, preserve value for depositors and investors and deal with market indiscipline.

He said the economy generally remains on sound footing, with marked improvement in performance, building on the 2021 growth, which is above the 3,4 percent average growth for sub-Saharan Africa.

“This was mainly due to a favourable 2020/2021 agricultural season and higher international mineral commodity prices,” said Prof Ncube.

“A stable micro-economic environment improved access to foreign currency through the foreign currency auction system and better management of the Covid-19 pandemic.

All these factors contributed to a good performance in 2021.”

Confederation of Zimbabwe Industries (CZI)

This week, the Confederation of Zimbabwe Industries (CZI) in its 2021 manufacturing sector survey report said capacity utilisation in the manufacturing sector jumped to 56,52 percent in 2021 from 47 percent in 2020 largely driven by increased investments in the industry.

According to the survey report, 42,7 percent of the manufacturing sectors are accessing the foreign exchange auction market.

The report said that companies are obtaining 39,5 percent of their foreign currency requirement from the auction market.

Drinks, tobacco and beverages sub-sector recorded the highest level of capacity utilisation in 2021 of 79 percent.

— @nqobilebhebhe

Article Source: The Chronicle

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