There is a thin layer between fiscal policy and monetary policy.
The Reserve Bank of Zimbabwe (RBZ) controls monetary policy while fiscal policy is formulated by the Ministry of Finance through Treasury systems.
But these two entities come together.
Some economists say these two policy frameworks are the foundation for sustainable economic growth, although this can vary from society to society.
Bad monetary and fiscal policies can lead to economic challenges like the one Zimbabwe has experienced.
Former RBZ Governor Gideon Gono oversaw the highest rate of inflation in 2008, leading to the abandonment of the local currency.
The peak month of hyperinflation occurred in mid-November 2008 with an estimated rate of 80% per month.
In general, it is believed that printing new worthless banknotes may contribute to the high rate of inflation.
Even informal foreign currency traders in Zimbabwe can experience the negative effects of introducing new banknotes that have no value due to their experience in the black market.
One could argue that money changers in Zimbabwe are good “economists” because they can predict government auctions and black market exchange rates a few days before the new banknotes come into circulation.
The 2007 bearer check series, first issued on March 2, 2007, with the introduction of checks for $ 5,000 and $ 50,000, fueled the rate of inflation.
Initially, the banknotes were introduced to serve as intermediate denominations between checks for $ 1,000, $ 10,000 and $ 100,000 respectively.
The prices of goods and services have increased at a faster rate.
This was after the government’s decision to introduce new notes.
Some people like me had trouble reading the numbers that were written on bearer checks because of the string of zeros.
It was a difficult time for citizens in general, who could not afford goods and services like health care.
Ironically, the numbers were big but not enough to buy a loaf of bread. There was no fixed price for bread or the bus ticket.
What was needed during this time was to estimate how much the price of bread and the price of the bus changed every hour even though we were still queuing to board a bus.
The use of hyperbolas like [You need to push your money in a wheelbarrow] when he went to buy a loaf of bread, used humor and denounced the government’s bad monetary policies.
Some believe that the Government of National Unity (GNU) has led to better fiscal and monetary policies in Zimbabwe.
The presentation by former finance minister Tendai Biti of his second budget after his appointment in February 2009 reaffirmed his commitment to a balanced budget without public borrowing during the 2009 period.
Biti, who was a GNU member who brought together the late former President Robert Mugabe’s Zanu PF and the late MDC-T opposition leader Morgan Tsvangirai in 2009, revealed that the banking system, whose deposits were effectively wiped out by hyperinflation, had balances of around $ 700 million.
Since loans were depressed at $ 263 million, Biti blamed it in part on the “exorbitant and usurious” interest rates charged by banks.
Biti pointed out that out of 28 banks, 15 had met the central bank’s minimum capital requirements, of which three were marginally short and 10 were “under-capitalized.”
Bad monetary and fiscal policies can pose a threat to the sustainable business environment of banks.
Some believe that the multi-currency system introduced when Biti became Minister of Finance has transformed Zimbabwe’s economic situation.
Meanwhile, the country has managed to strike a balance between growth and stability.
Others wonder if the positive fallout is due to the confidence brought to the economy by the introduction of the multi-currency regime or to a better political framework?
Some researchers claim that Zimbabwe’s economy grew on average 12% from 2009 to 2013, making it one of the growing economies in the world recovering from negative growth from 1998 to 2008.
Zimbabwe’s consumer price index (CPI) fell from the 97.1 level in 2009 to the 109.1 level in 2013, which fell 1% after the GNU in 2014.
The Ministry of Finance and RBZ should rely on historical data when formulating monetary and fiscal policy to avoid previous mistakes.
Research and development is not a choice, but it is a fundamental process before policies are implemented.
The government of Zimbabwe introduced bonds in 2016 as a monetary policy to address treasury challenges.
However, the banknotes were not able to meet the intended target, but rather made the cash flow problems worse, as people were still queuing for the banknotes.
When the bonds were introduced, RBZ Governor John Mangudya said they were secured by a loan from the African Export and Import Bank and anyone could exchange the surrogate currency in the country. par with US dollars.
Honestly, valuing the US $ 1 at 1: 1 with the $ 1 would be underestimating the value of the US dollar.
Of course, being confident with the local currency shows a sort of patriotism, but some have rejected the bonds before they even started circulating.
Industry and mainstream consumers greeted RBZ bond notes with mixed feelings when the promissory notes rocked the market.
Some economists criticized the government’s decision, alluding to the negative impacts of bonds on the economy.
In an interview with 263catBiti lambasted the government for its decision to bring bonds into the market, saying the move would result in the outsourcing and closure of businesses, among other dire consequences.
Probably, the move was the government’s plan to do away with the multi-currency system.
The new administration of President Emmerson Mnangagwa has made monetary and fiscal policy changes since 2017.
The increase in black market money supply due to mobile money platforms such as Ecocash and One Money is seen as the main reason why local currency continues to lose value.
Mobile money platforms are fueling the forex market, which may have prompted the government to impose a stipulated limit on mobile money transfers per day.
But the exchange rates are rising every month despite the government’s currency auction system.
Another factor that can affect exchange rates is the RTGS salary increase for civil servants.
Recently, in July this year, the government announced that it had increased civil servants’ salaries by 50%.
This could have caused a sharp increase in exchange rates.
When mthuli Ncube was appointed finance minister, many people believed in him because he kept mentioning the term “surplus” whenever he gave an update on his plan to stimulate the economy.
The truth is, conditions for an ordinary person show that Zimbabwe’s economy is not improving.
Only a political overhaul can save Zimbabwe from further economic ruin.
- Evans Mathanda is a journalist and development practitioner who writes in a personal capacity. For email comments: [email protected] or call 0719770038 and Twitter @ EvansMathanda19