US$ ban piles pressure on employers

The government should channel its entire surplus towards cushioning workers in the face of rising costs and declining incomes, economist Ashok Chakravarti has said.

In a wide-ranging interview with Standardbusiness last Friday, Chakravarti, who is also an adviser to government, said the recent monetary measures were welcome, but need to be supported with further actions.

Following the promulgation of Statutory Instrument (SI) 142 of 2019 last week, which ended the multicurrency regime and reintroduced the Zimbabwe dollar as the sole currency, the black market forex rates have been depressed.

But because of the high uncertainty prevailing in the market, retail outlets drastically increased prices while some pharmacies have reportedly taken off high-value medicines from the shelves to preserve their worth.

The price hikes have piled pressure on employers to review salaries across the board.

"For wages, I do believe there has been a significant eroding on wages and, therefore, both the government and the private sector have no choice, but to increase wages significantly," Chakravarti said.

"You have to cushion the working people and I am 100% in support of that and I will speak for it. In fact, as far as government is concerned, I know that discussions are going on.

"As you know, while we have to maintain some kind of fiscal balance, Hon (Finance) minister (Mthuli) Ncube has said he has got a fiscal surplus.

"So, I would then say to him let us take the entire fiscal surplus and give it to civil servants and police to cushion them and there is nothing wrong with that.

"To the private sector, I say very plainly - let me give you an example of an exporter.

"About 50% of his money was previously being taken by the RBZ (Reserve Bank of Zimbabwe) and still is. But, previously, he was getting 1:1 for that 50%, think of that.

"Today he is getting the market rate for that 50%. So let us say there was a man who is exporting gold and was getting $100 million in RTGS at one to one.

‘Today, at the interbank market rate, he is getting $650 million, the same guy.

"The same amount of US dollars, but is being converted into RTGS when they are converting at the interbank market rate.

"So, export companies have become super-profitable and there is no reason why they cannot share some of that with their workers and they should give them 100% salary increases."

In order to maintain the value of wages, some analysts have over the years suggested that government must adopt the South African rand, but the market was more inclined to the US dollar, which is stronger and more stable.

However, Chakravarti was of the view that the Zimbabwean market preferred to trade in the US dollar during the multi-currency era.

"You will recall when we first started with the multicurrency in 2009, initially the rand was in primary circulation and it was mostly the rand that was being used," he said.

"But the people decided otherwise. The US dollar is a very strong and stable currency whereas the rand is a weak and volatile currency.

"So, if I think about it, as the average market agent I will prefer to trade, deal and keep the US dollar rather than the rand.

"That is where all our problems started because a small and weak economy like ours cannot adopt a strong currency and expect that to be the basis for pricing, transactions and for economic growth.

"This electronic money that we have, our ZWL$10 billion, in reality, practical and theoretical terms was and is a local currency.

"People had this idea that somehow this was US dollars and it was not their fault because the government of that time (the one before the current) said this was US dollar so we all thought that, well government is saying it's USD so it's USD.

"But, at the time, I explicitly said this was not the USD dollar, this was a local currency created electronically.

"So we have had a local currency for a very long time.

"All that has happened now is that we have officially recognised that these RTGS balances plus this bond note, as the governor of the Reserve Bank (John Mangudya) said, are the family of local currency."

Chakravarti said the only way to end the confidence deficit would be through concrete actions taken by government, which positively affect ordinary people.