RBZ governor turns to faith

RESERVE Bank of Zimbabwe (RBZ) governor John Mangudya yesterday said there is need to "walk by faith", not by sight in this economy, as economists shot down plans to introduce bond notes as part of measures to resolve the cash crisis.

Speaking at the Zimbabwe National Chamber of Commerce cash shortage breakfast meeting in Harare, Mangudya said faith was the missing link in the economy.

"This economy needs you to go by faith because sight says in 2008 we had hyperinflation, sight says in 2008 you let us down. Faith says export facility is self-regulating, it's not the Reserve Bank of Zimbabwe, it's the banks who will request the facility. Our purpose is not to have bond notes but to support exporters," he said.

This is the second time inside a week that Mangudya has gone spiritual after giving a sermon to legislators on Monday that it was not all doom and gloom for the Zimbabwean economy.

Mangudya last week announced a $200 million foreign exchange stabilisation and incentive support facility to provide a 5% incentive on all foreign exchange receipts including tobacco and gold sales proceeds. Qualifying foreign exchange earners would be paid in bond coins and notes, which would be introduced in denominations of $2, $5, $10 and $20. The move to introduce bond notes has raised fears that government wants to revive the Zimbabwean dollar rejected in favour of the multicurrency regime in 2009. The local unit was eventually retired last year.

Renowned economist, Ashok Chakravarti told the meeting Zimbabwe should follow practices that have been implemented before by countries that had more imports than exports.

"The bond issue is not the issue here. Remove the necessity of the bond notes or the return of the Zimbabwe dollar by the back door. Bond notes are the wrong way to go. Make the import tax of 3%, 4% 5% that's revenues for government," he said.

Chakravarti said the economy needed to be regulated since it has been over-liberalised leading to the externalisation of close to $2 billion.

He said liquidity would increase gradually if the withdrawal limits start at $200.

Chakravarti said the economy has excess demand, which was fuelled by over expenditure by government.

"Stop printing Treasury Bills (TBs). If you look at demand deposits $4,5 billion and the $2 billion Treasury Bills, you cannot have the TBs control excess demand," he said.

But Mangudya said TBs were issued to pay the debts of $1,4 billion incurred by RBZ. He said the problem was not of the TBs but that money was not circulating in the economy.

He said the bond notes would not be printed in Zimbabwe and he has no appetite to do any action that jeopardises the economy.

"The money is on request by banks that are doing exports and also the facility they also want to know about it so that what is printed is not above the limits. They (Afreximbank) are a Triple B-rated bank, this is different," he said.

Economist, Brains Muchemwa said people should not be forced to accept bond notes because the economy was not ready for such a message.

"Zimbabweans are used to putting controls here and there, but history tells us that controls never worked. We have tombstones for controls such as National Income Pricing Commission, parallel market and they all failed. The control mentality never really worked in this market," he said.

Industrialist, Lovemore Mukono said the government should reconsider the decision to bring bond notes, adding that exporters should instead be assisted by stopping the importation of cheap poor quality products that were finding their way into the economy.

Mangudya said the economists were agreeing on rewarding exporters, but increasing the import duty would mean an increase in prices and inflation.

"If we put 3% import tax on companies, this will increase prices and also bring inflation. We are saying we have listened. Let's continue engaging so that they see why bond notes are superior to what they are saying. Let's have bond notes because they have no impact on increasing prices," he said.