News / National
Chinamasa blames dollarisation for economic challenges
22 Jul 2014 at 08:22hrs | Views
THE introduction of the multi-currency regime in 2009 is to blame for the economic challenges Zimbabwe faces today as it caused an increase in the cost of commodities and raised salaries to unsustainable levels while reducing demand, Finance and Economic Development Minister Patrick Chinamasa said yesterday.
Minister Chinamasa was giving evidence on the state of the economy before the Portfolio Committee on Finance and Economic Development.
Then Legal and Parliamentary Affairs Minister, Acting Finance Minister Chinamasa introduced the multi-currency regime on January 29, 2009 in the wake of the sanctions-induced collapse of the Zimbabwe dollar.
"The migration from hyperinflation to multi-currency did a lot of damage to our economy," he said.
"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.
"So, in that sense it means that the cost structure is not sustainable, it basically kills aggregate demand which is very necessary for any economy to function."
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.
"Secondly, the wage structure is also not sustainable," he said. "The wage structure that the private sector is paying is not sustainable, we are beginning to see the signs now. A lot of companies are six, seven, eight months behind, without paying wages."
Minister Chinamasa said it was surprising that people who had gone for months without being paid were still going to work and some agitating for increments.
The dollarisation of the economy in 2009, two weeks before the formation of the inclusive Government, halted hyperinflation and ensured that goods that were being smuggled out of Zimbabwe returned to the shelves, but some analysts have said the policy also reduced the country's competitiveness as it increased the cost of locally-produced goods compared to neighbouring countries, resulting in an influx of cheap imports that have killed local the industry.
Turning to other issues, Minister Chinamasa defended Cabinet's decision to allow organisations like the ZRP, the Registrar General's Office and Zimbabwe National Roads Administration to retain some of the money they collect, saying it was necessary to ensure the organisations continued to play their critical roles.
"As long as we are running a cash budget, which we are, and that cash budget 78 percent or thereabouts is going to wages, it means until the money is received we have nothing to pay," he said.
"Now, what that means is that we have no money for operations, we have no money for capital formation which is very undesirable. So these retention funds were instituted basically to ensure that the money is used for dedicated purposes, in some instances to ensure that those institutions which collect cash do not end up not being given money to run their offices."
A fortnight ago, Zimbabwe Revenue Authority Commissioner General Mr Gershem Pasi expressed concern that some institutions that were collecting revenue were not remitting it to Treasury, thus burdening the tax collector with the sole responsibility to collect money for Government operations.
Minister Chinamasa defended Zimra's pursuit of companies and individuals that were not remitting taxes, saying everyone was obliged to pay taxes.
On corruption, Minister Chinamasa said Government was establishing systems to deal with corruption, especially in State enterprises.
He reiterated that sanctions were affecting Zimbabwe's ability to access cheap funding.
He was then involved in a verbal exchange with MDC-T's Dorcas Sibanda who kept on insisting that the illegal sanctions had no effect on the economy since they were targeted at individuals.
"The Americans admit there are sanctions and Zidera is about sanctions, read it madam," Minister Chinamasa said.
The verbal exchange stopped after the intervention of the committee's chairperson, Cde David Chapfika.
Minister Chinamasa was giving evidence on the state of the economy before the Portfolio Committee on Finance and Economic Development.
Then Legal and Parliamentary Affairs Minister, Acting Finance Minister Chinamasa introduced the multi-currency regime on January 29, 2009 in the wake of the sanctions-induced collapse of the Zimbabwe dollar.
"The migration from hyperinflation to multi-currency did a lot of damage to our economy," he said.
"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.
"So, in that sense it means that the cost structure is not sustainable, it basically kills aggregate demand which is very necessary for any economy to function."
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.
"Secondly, the wage structure is also not sustainable," he said. "The wage structure that the private sector is paying is not sustainable, we are beginning to see the signs now. A lot of companies are six, seven, eight months behind, without paying wages."
Minister Chinamasa said it was surprising that people who had gone for months without being paid were still going to work and some agitating for increments.
The dollarisation of the economy in 2009, two weeks before the formation of the inclusive Government, halted hyperinflation and ensured that goods that were being smuggled out of Zimbabwe returned to the shelves, but some analysts have said the policy also reduced the country's competitiveness as it increased the cost of locally-produced goods compared to neighbouring countries, resulting in an influx of cheap imports that have killed local the industry.
Turning to other issues, Minister Chinamasa defended Cabinet's decision to allow organisations like the ZRP, the Registrar General's Office and Zimbabwe National Roads Administration to retain some of the money they collect, saying it was necessary to ensure the organisations continued to play their critical roles.
"As long as we are running a cash budget, which we are, and that cash budget 78 percent or thereabouts is going to wages, it means until the money is received we have nothing to pay," he said.
"Now, what that means is that we have no money for operations, we have no money for capital formation which is very undesirable. So these retention funds were instituted basically to ensure that the money is used for dedicated purposes, in some instances to ensure that those institutions which collect cash do not end up not being given money to run their offices."
A fortnight ago, Zimbabwe Revenue Authority Commissioner General Mr Gershem Pasi expressed concern that some institutions that were collecting revenue were not remitting it to Treasury, thus burdening the tax collector with the sole responsibility to collect money for Government operations.
Minister Chinamasa defended Zimra's pursuit of companies and individuals that were not remitting taxes, saying everyone was obliged to pay taxes.
On corruption, Minister Chinamasa said Government was establishing systems to deal with corruption, especially in State enterprises.
He reiterated that sanctions were affecting Zimbabwe's ability to access cheap funding.
He was then involved in a verbal exchange with MDC-T's Dorcas Sibanda who kept on insisting that the illegal sanctions had no effect on the economy since they were targeted at individuals.
"The Americans admit there are sanctions and Zidera is about sanctions, read it madam," Minister Chinamasa said.
The verbal exchange stopped after the intervention of the committee's chairperson, Cde David Chapfika.
Source - The Herald
