Fears over money printing
…As polls loom
LIVINGSTONE MARUFU/PHILLIMON MHLANGA
The government is likely to play Father Christmas, doling out sweeteners in the run-up to the 2023 harmonised elections amid fears such an exercise would reverse the economic gains made over the past months, Business Times can report.
Finance and Economic Development minister Mthuli Ncube and the Reserve Bank of Zimbabwe (RBZ) governor, John Mangudya have been promising to stabilise the economy through tight reserve money targets and money supply control.
Experts said history is going to repeat itself with the government resorting to the printing press to fund unbudgeted expenditures associated with elections.
There are fears that the central bank might be forced to restart printing additional money and pump it into the frail economy to provide subsidies as the country is already in election season.
Excessive printing of money also known as quantitative easing is likely to tank the value of money in the economy.
Efforts to get a comment from Mangudya and Ncube were futile.
Multiple economists and captains of industry, have also warned there is a high likelihood of the tight reserve money programme going “off track”, this year, a move they said would threaten the already ailing economy and businesses.
They said the government would create unnecessary subsidies and cashouts.
Consequently, the expected high government expenditure will have inflationary consequences.
They said this will affect economic functionalities as resources will not be evenly distributed to other key sectors of the economy as the country goes into election season.
The Zimbabwe dollar has lost more than 60% and 200% of its value against the United States dollars on the formal and parallel market respectively since it was reintroduced.
University of Zimbabwe economics lecturer, Moses Chundu, expects the government to be like a “Father Christmas” as the administration will have the appetite to spend to enable the governing party ZANU-PF to garner more votes in the forthcoming elections.
“There is a likelihood that the RBZ reserve money targets will fall off as the government would increase its spending to retain power at all costs,” Chundu told Business Times yesterday.
“In the past few years, there has been an infrastructure construction overdrive, especially on road rehabilitation. The government is acting like a father Christmas and a saviour who serves the masses from the messy MDC dominated councils.”
Chundu added: “Inflation is when very few goods chase too much money in the economy hence on every election campaigning season, the government will shift its resources to appease the masses, hence by this, the economy will take a knock.”
Another economist, Gift Mugano, expects expenditure to go up this year as the plebiscite draws closer.
“There is a huge likelihood of unproductive money creation since we are getting into an election season and it is likely to affect economic functionalities as resources will not be evenly distributed to other key sectors of the economy,” Mugano said.
“As of September 30, 2021, the government had already spent over 171% of its 2021 budget allocation. It’s not surprising that by the year’s end, the authorities would have spent over 200%.”
Added Mugano: “The government has been campaigning using populist programmes like Pfumvudza and Command Agriculture to reach out to people and it’s not a coincidence that banks have started lending a thing which they have not been doing in the past years. That’s where we start to see high non-performing loans after the elections. The politicians will do this to garner support at the expense of the economy.”
“Now the government is using short term financial instruments which are expensive to fund road construction which is impossible as projects of such magnitude need long term instruments like bonds. If we analyse our capital expenditure was usually at 10% but with infrastructure and agriculture projects, the government has pushed it to above 34% which is very abnormal for an economy like ours.”
Zimbabwe’s money supply growth has already outpaced an International Monetary Fund target of 10%.
Consequently, Zimbabwe has already received warnings from the Bretton Woods institution.
Captains of the industry also fear money supply growth fuelled by money printing by the government will adversely affect business.
The Confederation of Zimbabwe (CZI) has since written to the monetary authorities to contain money growth as the country gears up for by-elections in March this year and harmonised elections next year.
“As an industry, we have given recommendations for containing money growth and we believe there could be some solution around the issue,” CZI president Kurai Matsheza said.
Industrialist, Sifelani Jabangwe, said it was imperative for the government to monitor money supply growth.
“… What we want is the monetary authorities to monitor money supply growth and improve the efficiency of the auction system as the high forex receipts will count for nothing if there are some people who are abusing some sectors’ hard-earned forex,” Jabangwe said.
The Zimbabwe National Chamber of Commerce CEO, Christopher Mugaga, said it was important for the RBZ to put a lid on money supply growth.
“.…The exchange rate and inflation are two threats to economic stability. To manage these, it’s just a case of putting down a lid on money supply growth and stop creating unproductive money so that the growth of 5% is achievable,” Mugaga told Business Times yesterday.
“This will not necessarily translate to an upper-middle-income economy because we are running out of time. So, we certainly need to invest a bit more in growing the economy to double digits otherwise the only way we can deal with the informality in the economy is only through significant economic growth. Without that the informal economy will remain the major source of employment in this economy.”
CEO Africa Roundtable chairman, Oswell Binha said business will continue to operate under the VUCA (volatile, uncertain, complex and ambiguous) environment.
“The CEO Africa Roundtable remains concerned that the macroeconomic environment continues to be complex, uncertain, ambiguous and volatile,” Binha said in the latest CEO Africa Roundtable bulletin.
“We continue to champion efforts to engage research-based advocacy, engendering a no holds barred narrative and discourse in 2022 and beyond. As the economy takes off in 2022, we urge policymakers to ensure that the economic policies enacted are investor-friendly and promote an environment for public and private sector businesses to thrive.”