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Mr Cross's zeal with limited knowledge, a danger to macro-economic stability

31 Jul 2021 at 19:32hrs | Views
Mr Eddie Cross's article titled "Challenges facing the foreign exchange auction" made a lot of casual reading amusement, especially for those amongst us uninitiated in the domain of macro-economic analysis.

Beyond the reading, however, the article exhibited a number faults that made it imperative for us who want Zimbabwe to succeed to spring out of our comfort zones and respond with key clarifications.

In broad terms, Mr Cross' article qualifies for a recklessly compiled mixture of lies, inaccuracies and such other high-sounding innuendoes, all targeted at spooking the markets and destabilising the current macro-economic progress.

The anti-stability tone in the article, which is anchored on disrupting the foreign exchange auction, which is credited with the successful disinflation programme, leaves Mr Cross's article in sync with the recent rant against Zimbabwe's progress by his long-time ally, Mr Tendai Biti.

It is no coincidence that the tirade from Mr Cross and Mr Biti came a week apart, flying in the face of reports from the International Monetary Fund and the World Bank, acknowledging progress made by President Emmerson Mnangagwa's government in fostering macro-economic stability.

This probable linkage is certainly not far-fetched given that opposition remains Mr Cross's political home.
Coming back to the business of the day, the former MDC legislator was at it again, attempting to blame the country's central bank, accusing it of allocating more foreign currency than what is available in its coffers.

While his argument may seem plausible, it ignores the seasonal realities of Zimbabwe's foreign exchange earnings. Zimbabwe, like any other commodity exporting developing country, experiences perennial fluctuations in foreign exchange receipts.  Such a sad but factual position demands that the Reserve Bank of Zimbabwe (RBZ) plays the smoothening role for the economy given its birds' eye view of foreign exchange earnings, which allows it to forecast inflows over the medium to long-term with reasonable accuracy.

Of course, require the full support of key stakeholders such as exporters and the banking sector in pursuit of national interests and in a way that counters the sanctions-induced liquidity restrictions if these measures are to succeed. Unless overcome by some ruinous motive, Mr Cross should have known that even at corporate level, it is normal to have an intertemporal mismatch between revenues and expenditures. Such mismatches, at both enterprise and macro-economic levels, are not harmful for as long as they are not structural or out of sync with underlying fundamentals.

In normal macro-economic management, a central bank has recourse to official reserves as a buffer to mitigate the effects of fluctuations in foreign exchange earnings. In other words, it is common cause that neither companies nor nations operate on a cash basis like backyard tuckshops as Mr Cross wants Zimbabweans to believe. The country's historical and current gross official reserve position is a matter of public record and hence the Central Bank's current innovative arrangements with exporters and banks to keep the economy going.

If Mr Cross was really serious about establishing the facts, the Minister of Finance and Economic Development as well as the RBZ Governor, Dr John Mangudya, are a phone call away. After all, until recently he was a member of the Monetary Policy Committee.

Unfortunately, it is not about respecting the correctness of facts. In his myopic agenda to discredit the prevailing macro-economic stability as part of a regime change agenda, facts have become an inconvenient truth. What Mr Cross and his handlers are forgetting is that lies have got short legs; they cannot run a marathon.

Mr Cross is, however, no fool! Having worked for the colonial Ian Smith regime, where he used to occupy strategic positions at the Agricultural Marketing Authority, Dairy Marketing Board and Cold Storage Commission in the 1970s, he knows where to strike in order to destabilise the system. There is therefore no prize for guessing that his target is the foreign currency auction, whose introduction in July last year calmed markets which were in turmoil and fomenting public disenchantment against President Mnangagwa's government.

Mr Cross obviously knows that a fluctuating figure of allocations on the auction exudes and transmit negative perception among suppliers of raw materials and other products to the economy with potential implications for unnecessary commodity shortages in the economy. Such a development, would negate the country's current growth trajectory, reverse the disinflation gains and advance everything against the Second Republics Vision 2030.
It is, therefore, difficult to understand how such common central banking mechanics and linkages with the wider economy evaded a former RBZ insider, Mr Cross, unless it was deliberate and targeted at disrupting the markets. What further leaves Mr Cross's article with a bitter taste is his previous efforts to sabotage and unstrategically announcing priviledged information to the detriment of the national cause. A case in point is when the former MDC stalwart almost single-handedly derailed the successful introduction of higher denomination notes after prematurely announcing their introduction.
 
To be precise, Zimbabwe's external sector and other macro-economic fundamentals are fully supportive of the medium to long-term sustainability of the foreign exchange auction on account of a resilient balance of payments position, headlined by a current account surplus, monetary restraint anchored on strict reserve money targeting and fiscal astuteness.

The economy is expected grow by 7.4% in 2021 on the back of strong export growth, increased capacity utilisation by domestic industry and above all, the now demonstrable commitment of the Second Republic towards market-friendly economic policies. This background has seen the economy enjoying phenomenal export growth (31% year-on-year to May 2021), resilient remittance inflows and attainment of food self-sufficiency following a highly successful 2020/21 agricultural season entail a significant reduction in cereal imports.
The long running thread in Mr Cross' article is his attempt to inform macro-economic policy through whipping stakeholders' emotions using street and bar estimates of important variables such as his imagined US$3 billion worth of smuggled gold, the number of Zimbabweans in the diaspora and their remittance motives as well as the volumes of smuggled imports.

While these figures are flying out there, it would extremely irresponsible for Dr Mangudya and Minister Ncube to take such figure as inputs into formulating important policies like the exchange rate management policy. There is certainly need for well-designed studies to ascertain these variables.

My IT friend always talks of the concept of garbage-in garbage-out whereby flawed data input produces nonsense or faulty output. This concept also applies squarely in other fields, including economics.  It should, therefore, not come as a surprise that after feeding from a collection of unscientifically generated and probably politically motivated figures, Mr Cross came to a ridiculous conclusion that recklessly abandoning the foreign exchange auction system at the RBZ would turn into a magic wand that miraculously strengthens the domestic currency to its old exchange of approximately ZW$2 to the green back.

We indeed share Mr Cross's passion for a stronger local currency but choose to follow science, fact and rationality in pursuit of that goal knowing that exchange rate and currency management decisions affects livelihoods.

Finally, Mr Cross has priviledged access to important leaders like the President, the Governor and Minister of Finance whom I believe could have willingly assisted the former MDC legislator with accurate figures and facts to guide his public rant and spare market his self-serving meant to spook the markets.

Without accusing Mr Cross of anything, I prefer in my parting shot to highlight that United States sanctions transmission methodology has always and continued to be promoting despondency especially relating to exchange rates in order to stoke inflation expectations and generate instability.

Could it be that Mr Cross' screaming article on US$200 million auction backlog is intended to serve the same purpose or its mere coincidence? The jury is still out.

Jameson Dapi is an economist and development finance expert. He writes here in his personal capacity. For views and comments, e-mail to dapijameson@gmail.com


Source - Jameson Dapi
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