Both President Emmerson Mnangagwa and new Finance minister Mthuli Ncube have ruled out the immediate return of the decommissioned Zimbabwe dollar — saying the country will for now continue to use bond notes and the multiple currency system until the local economy stabilises.
This comes as there has been growing anxiety among both business and ordinary Zimbabweans, following the dramatic spike in foreign currency rates on the parallel market over the past few weeks.
The forex black market rates ran amok last week following the suggestion by Ncube that the government would be phasing out bond notes before the end of the year — a position that authorities have since moved to dampen.
Speaking in Parliament yesterday during his inaugural State of the Nation Address (Sona), Mnangagwa said bond notes and the multiple currency regime would remain in place, at least until the economy had stabilised.
Similarly, Ncube also said yesterday that the bond notes and the multiple currency system — in which the much-coveted United States dollar is effectively the country’s anchor currency — would continue to power all monetary transactions until the government had finalised its planned currency reforms.
He revealed that a committee to deal with both the currency and fiscal reforms would be appointed next month — although he didn’t give the time lines for the completion of this work.
“People should accept the bond note because as of today we have not changed the currency. They should accept it … until we have come up with a package which will then be a lasting solution to the currency and fiscal issues.
“The direction on currency reforms is also linked with the direction on fiscal reforms. What we are considering is a package that will be a foundation for a strong currency going forward.
“As I often say, monetary reforms and fiscal reforms are two necks of the same body,” Ncube told the media.
The highly-regarded new Finance minister had sent the markets into a tailspin last week after he outlined his vision, soon after his inauguration, where he suggested that bond notes would be gone before the end of this year.
“I am very clear that there have to be currency reforms and the (current) currency approach is not working.
“In doing so, there are three choices that I will explore and pursue with urgency. One, adopt the US dollar only and remove the bond notes from circulation through a demonetisation process and also liberalise exchange controls.
“Two, adopt the Rand by negotiating to join the Rand Monetary Area, and this will close the gap with regards to the loss of competitiveness against our largest trading partner, South Africa.
“Three, adopt a new Zim dollar, and here one needs to be clear that it has to be backed by adequate foreign reserves and macroeconomic conditions for its stability.
“Foreign currency accounts will also be introduced. For sure, currency reforms will be implemented,” Ncube said in remarks which were later seen as contributing to the current upheaval on the parallel market.
Zimbabwe introduced the bond notes towards the end of 2016 as part of its desperate bid to address the country’s severe cash and liquid crisis — all this under a special arrangement with Afrexim Bank.
However, the country has remained in the grip of a ginormous economic crisis characterised by endless cash queues and the acute foreign currency shortages.
Despite Zimbabwe having a decent tobacco season, as well as having significantly improved its gold sales, the Reserve Bank of Zimbabwe (RBZ) has not been able to allocate adequate foreign currency to key sectors of the economy.
Ncube also said yesterday that the government was not only working on broader economic reforms aimed at addressing the currency problems, but also the government’s excessive spending which has been fingered as being behind many of the country’s macro-economic problems.
“The fiscal side is also an albatross on the monetary side. So, if we are going to have monetary sector reforms, we also need reforms on the fiscal side and these include reducing the budget deficit to a single digit as quickly as we can and adopting a budgeting approach that always take a medium-term approach.
“So, it’s a package that we are working on rather than something as narrow as the currency that is being used on the street … that’s the foundation for a strong currency going forward,” Ncube said.
Mnangagwa and his Cabinet are under pressure to stop the economy from sliding back into the throes of an economic crisis similar to the 2008 hyperinflation era.
Over the past few weeks, the prices of basic commodities shot up sharply, while some goods have disappeared completely from supermarket shelves due to the country’s acute foreign currency shortages.
This has come at the same time that industry has warned that the deepening foreign currency crisis is making it difficult for manufacturers to import critical raw materials on time.
Industry, as a result, has also warned of further price hikes and shortages of basic consumer goods.
Already the country is experiencing shortages of basic goods, hospital drugs and construction materials such as cement.
Last week, millers also confirmed that a bread crisis was looming as wheat stocks in the country had now reached critical levels.
Meanwhile, Zimbabwe yesterday received a huge boost from Britain which said it would be supporting the country’s plan to clear its debt arrears with the World Bank and the African Development Bank.
Zimbabwe owes the two institutions a combined $1,8 billion.
Clearing the arrears would help the country to be considered for borrowing fresh money, and thereby help to resuscitate the ailing economy.