On 1 July 2019, on the invitation of the Parliamentary Portfolio Committee on Budget Finance and Economic Development, the Minister Hon. Prof. Mthuli Ncube met with Parliamentarians to brief them on the Statutory Instrument 142 of 2019 on Reserve Bank of Zimbabwe regulations and the implementation mechanisms.
A detailed report on the background, implications and the modalities for implementing S.I. 142 was presented. The Parliamentarians then raised an array of questions, which the Minister, Secretary for Finance and Economic Development Mr. G. Guvamatanga and Governor of the Reserve Bank of Zimbabwe Dr. J.P. Mangudya responded to.
Question and Answer Session
The following questions were raised and the respective responses were given as follows:
Question: Given that the RTGS$ has been losing value more than the salary adjustments awarded to civil servant, are we going to see a salary adjustment for the civil servants?
Response: The salaries will be adjusted to cushion the civil servants. Even before S.1. 142, Government had already started working on salary adjustments, and this is over and above no-monetary incentives. The Ministry is finalising discussions with the Public Service Commission and labour representatives, therefore a salary increment is expected to be effected by end of July.
Question: It seems the issue of introducing the currency was not well communicated to people, particularly the rural areas. People are being fleeced by money changers who are changing US dollars at very low rates, at times 1:1. By implementing S.I. 142 of 2019 are we not being reactive?
Response: The Ministry will continue to work on this. A Communications Strategist will be hired soon. Interviews were conducted and three people were shortlisted. In addition, the Ministry and RBZ will in the next few weeks launch a publicity campaign.
Question: What interventions are in place to stop those who are continuously selling commodities in US dollars?
Response: There are many instruments among them the Bank Use Promotion Act, as well as surveillance by the Financial Intelligence Unit in the RBZ and the police. They have started implementing this.
Question: What mechanism are in place for the interbank market to work?
Response: By ensuring that money in the Nostro FCA is traded freely, this will increase liquidity in the foreign exchange market. Also given that, the US dollar is no longer used for settling domestic transactions this will also easy pressure on for demand of US dollars. On the part of RBZ, it will off load 50% of the export retentions on the interbank market as well as looking for more lines of credit to liquidate on the interbank.
Question: There are some schools like Midlands State University, which were charging in US dollars, what is the position now?
Response: All domestic transactions should be settled in ZWL$, hence school fees should be paid in local currency. There should be discipline in the economy.
Question: The interest rate hike is punitive to genuine, honest local businesses who would want to recapitalize. What are you doing to avoid this?
Response: There are two reason for the hike firstly, it was to deal with speculative behavior by individuals and companies which were borrowing at low rates and buying foreign currency. Secondly, it was to deal with inflation. To separate the honest and dishonest businesses it’s the job of the banks. The interest hike is temporal if we stabilize it might be changed.
Question: There is selective administration of the policy, e.g. ticketing by airlines, why?
Response: This is temporal and we want to reduce the legacy debts. This will be eliminated as things normalise.
Question: Why issue the S.I. 142 of 2019 all of a sudden, are we not being reactive by implementing S.I. 142 of 2019?
Response: When you are dealing with a currency, you don’t call for a referendum. We move ahead and we don’t compromise. There were signals that were given by President and the Minister of Finance to try and to conscientise people. The issue of currency introduction is sensitive and you need to move swiftly and decisively given there was a lot of speculative tendencies that were going around.
Question: Explain the difference between the two FCAs
Response: There is individual and Corporates FCAs. The individual is the one opened by individuals to bank or receive foreign currency. This is treated as free funds, which they can withdraw and change if they want to transact locally. The Corporate FCA involves two accounts the one funded by domestic receipts and the one funded by exports. The FCAs for corporates is only used to settle international payments serve for special cases, which require withdrawals.
Question: The US$1000, is this for settlement of international payments?
Response: This amount is available for individuals to withdraw to meet foreign and local transaction when converted to local currency.
Question: Tour and safari operators, can they accept payment in international credit cards?
Response: Tourism is low hanging fruit and we expect tourists to pay in foreign currency. Operators can also withdraw and make foreign payments. RBZ is working on having ATMs that will dispense local currency in all resort towns.
Question: With interest at 50%, does this promote any confidence building because it follows that when mark ups are factored, prizes will go up significantly.
Response: Borrowing from the RBZ does not mean banks should charge that. Its only when they are in short thus when they need to come to RBZ for accommodation. This imply that banks should remunerate deposits so that they are always liquid. We are aware of the implications that high interest rates have on the economy over time. However, there are two sides of interest rates. Lenders or savers on one side tend to lose when interest rates are low. On the other borrowers will access the money cheaply and take speculative positions. So interest rates should be in sympathy with inflation.
Question: How do we achieve economic growth when the rates are punitive?
Response: There is need to bring some stability first by controlling inflation and then make adjustment necessary to stimulate growth.
Question: The market was pricing basing on parallel market exchange rate, what are you doing to make sure that there is sanity?
Response: Given inflation is always and everywhere a monetary phenomenon. We are going to squeeze the market by increasing interest rates and flush out excess liquidity. This will force prices to come down.
Question: How strong are we as a country at the moment to support this currency of our own? You promised that you will only bring the currency when fundamentals are right, are we on track?
Response: What are these fundamentals? Fiscal discipline which we are doing well, monetary discipline of which money supply is flat, confidence and production are being worked on. The two fiscal and monetary discipline were not there in the past and we have now put them in place.
Question: There is news about printing of US$400 million in the market. Are we going to see new currency being printed and are you not going to over print?
Response: Yes there will be printing of paper money to replace the US dollars that were in circulation. When we introduced S.I. 142 we created a gap on paper money that needs to be filled. The US dollars that were in circulation require to be replaced by Zim dollars. We will also print to replace the old notes that are soiled as well and also to replace the old money with new money. The printing will be done on a drip feed basis. No over printing is going to take place.
Question: Given real interest rate remains negative even after the hike, is it possible to sustain the currency.
Response: It was a matter of judgement, depending on whether one is looking at month on month or annual inflation. If we see that 50% is still low and it’s not delivering the results we can still adjust.
Question: Why not introduce the Rand?
Response: There is a whole lot of criteria that we need to satisfy including having our own currency. These may take long to achieve. Remember also Rand is a foreign currency we need to produce and export in order to earn it.
Question: How strong are we as an economy to support the currency?
Response: It is unsustainable for the economy to continue using the US dollar because the monetary policy is out of our control. It is determined by the Fed Reserve. What we did when we adopted the US dollar was capitulating. In addition, currency is not an issue, what matters are policies. We will protect the currency through instituting right policies.
Questions: Does the interest rate apply in retrospect on facilities that were running? Some companies are now receiving reviewed loan contracts.
Response: Interest rates are contractual they differ some are fixed and some variable. Variable rates yes will adjust. What we have done is to review short-term loan not long term we do not anticipate sharp increase in interest rates.
Question: Interbank is it functioning?
Response: Between 2 February and 29 June 2019, about US$520 million has been traded through the interbank. We need to be patient. In other jurisdictions, currency reform is banked by IMF and World Bank. What we did on our own is phenomenon.
Question: On the legacy debts, do banks have the RTGS$ to the transfer to the RBZ?
Response: They should have it, if they don’t we should know where it is. We will wait and here from them.
Question: How many Bureau De Change do we have?
Response: We have 55 and 43 are operational. We have many applications that we are still accessing.
Question: Government has over spend by $2 billion in 2018, when are you going to bring the Condonation Bill of Unauthorised Expenditure to the House?
Response: We will be bring the Bill to the House together with the 2019 Supplementary Budget in July.
Question: Do we have the amount of goods necessary to support the economy? Are we not going to see a repeat of 2008?
Response: This is not 2008 where there was fiscal and monetary indiscipline. We are not repeating.
Question: Industries are not performing, what will you do to lower the cost of borrowing?
Response: The adoption of the US dollar was in part a source of industry destruction. It results in loss of competitiveness. However, more of these industries have been making huge profits due to price hikes without experiencing also rise in the cost of production.
Question: When are you going to address the salaries of foreign missions?
Response: We have been experiencing challenges with payment modalities, however now we have resolved to pay them directly.
Question: There is a lot of dishonest among business people. Should we continue with free market economy or should we institute some controls?
Response: No we need to continue with free market, what we are experiencing is market failure and Government has just intervened to reestablish the markets.
Question: Give us assurance that what happens in 2008 will not repeat.
Response: We have moved and changed and we are now in a different policy environment characterised by fiscal and monetary policy discipline and we are making progress.
Question: What measures are you putting in place to stop illicit financial flows?
Response: We are being firm on Know Your Customers (KYC) and Customer Due Diligence (CDD) principles. CDD require banks to know where money is going whether the recipient is genuine or not. We will also strengthen the Exchange Control systems.
Question: Even at 8 or 6 the currency is still too strong should we consider devaluing it further.
Response: The exchange rate should find its own level through the forces of demand and supply in the short-term and in the long term fundamentals will determine its path.
Question: There are some contracts that were done in US dollar, is it a crime to honor them now in US dollar?
Response: For all contracts that were done in US dollar if they exist should be registered with the Exchange Control Department.
Question: Is it possible to have access to the details of the legacy debt?
Response: We need to balance out with the confidentiality of contracts. Will check and revert. The legacy debt will be assumed only when the RTGs are paid.
Question: The economy is not performing because of lack of confidence, is it not critical to have the political environment settled first?
Response: The issue of confidence is due to the socio, economic and political factors. Of which the economic factors are the ones we are addressing while socio and political are being addressed by the President through the political dialogue. We encourage you to support it.
Question: Some Insurance products are being sold in US dollars and to be paid in domestic Nostro accounts, what is going to be done and are people still allowed to open Nostro accounts.
Response: We have asked IPEC to look into the matter regarding those insurance products. We need to make an analysis first. People are encouraged to open accounts and deposit their money nothing has changed.
Question: There are brand new notes that are circulating, does it mean that banks have lost control?
Response: There will be monitoring of all currency circulating and the RBZ for a record has not participated in parallel market activities. If people come across such incidences, you are welcome to bring such to the RBZ and will investigate the source. All paper money has serial numbers, which can be verified.
Question: Production by local industries is being affected now by high interest rates and other factors such as lack of electricity and fuel, what are you doing to restore production?
Response: Power shortage is real we are working on importing electricity. The Ministry of Energy has just shared a paper on demand management and supply measures as well as squeezing of some efficiency in ZESA operations.
Question: Minister Chasi announced that ZESA has paid US$10 million to ESKOM, which the later said has not received, what is the position?
Response: The money was paid last week, however, according to Government process when the budget is released we consider that as payment. The money may take long up to 7 days for it to reach the recipient.
Question: The interbank is still trailing behind and it has been fueling the parallel market why can’t we peg it higher.
Response: Interbank and parallel market are independent of each other. What we need for now is stability and prices to decline.
Question: With retention reaching US$1 billion, are the holders willing to liquidate their money?
Response: Now we have raised the interest rate, they are now forced to liquidate some of their money because they have obligations to settle in local currency.
Question: Free floating is highly debatable, are you willing to review it?
Response: In the short term, the exchange rate is going to be determined by market forces and in the long term, fundamentals will determine its direction.
Question: Pensioners in this process of currency reform have been exposed. Why have we left the pensioners vulnerable?
Response: For the public ones, we are in the process of reviewing their payouts we also encourage the private sector to do so.
Question: Market reactions to the introduction of the Zim Dollar has shown some prices falling but the rate is lower than the exchange rate appreciation.
Response: There is a lag effect, retailers want some time to adjust.
Ministry of Finance and Economic Development