Finance and Economic Development Minister Professor Mthuli Ncube has said the price shocks that were recently experienced by the market are temporary as the economy adjusts to the new policies, which he has described as “bitter medicine” that will help the economy stabilise.
Prof Ncube said consumers and retailers resorting to panic buying and speculative activities are likely to incur heavy loses.
In an interview from Bali, Indonesia, where he was attending the IMF and World Bank meetings, Prof Ncube said there is need for the market to be patient.
“Ordinary Zimbabweans should not go into panic buying of goods and commodities, as prices will drop and they will lose money. Likewise, wholesalers and retailers should not hoard goods in anticipation of obtaining higher prices in future. They will incur loses. I urge everyone to be patient. We will turn around the fundamentals of the economy through various measures contained in the Transitional Stabilisation Programme,” he said.
The TSP is a recently adopted economic blueprint that will guide the economy through December 2020.
2 percent tax
Prof Ncube said while the Intermediated Money Transfer Tax of 2 cents per every dollar is painful, it is necessary to achieve sustainable economic growth.
“The interventions that I have put in place are designed to restore fiscal equilibrium and general macro-economic and monetary sector stability. This will then create the right environment for growth. The price shocks are temporary but inflation will stabilise as the markets finds equilibrium again.
“Sometimes bitter medicine causes the patient some discomfort as they swallow it. As a country, we have to take the pain early enough so that by year two of the reform agenda, we will have completed the bulk of reforms enunciated in the Transitional Stabilisation Programme.”
Last week, economist Mr Clive Mphambela cheered Professor Ncube’s 2 cents tax, saying it is a quick-win for revenue generation.
“There are many reasons why Zimbabweans must share the pain of economic adjustment. For decades now, the grey or black economy participants such as smugglers, informal traders, money changers and second-hand vehicle dealers have made fortunes yet they have declared nothing to the fiscus.
“However, everyone enjoys the benefits of subsidised health care, education and transport. Every citizen also enjoys subsidised electricity and fuel. Many informal and informal business do not pay PAYE or remit VAT to the revenue authority.
“Taxes will get us out of the woods. Successful countries generally have high taxes. Scandinavian countries are known for having very high taxes on income. According to the OECD, Denmark (26,4 percent), Norway (19,7 percent) and Sweden (22, 1 percent) all raise a high amount of tax revenue as a percent of GDP from individual income taxes and payroll taxes. This is compared to the 15 percent of GDP raised by the United States through its individual taxes and payroll taxes,” he said.
A recent research note from Old Mutual stockbrokers indicated that the new tax will widen the tax collection base in the informal sector.
“Review of the transfer tax significantly widens the tax collection base, particularly in the informal sector. The efficacy of the measure is enhanced by limited transaction media in the absence of cash. At current transaction values, the measure has potential to generate an additional $2,6 billion annually. On the flipside, the tax presents an additional cost, typical of a contractionary fiscal policy. Overall (though full implementation modalities are still outstanding), the motive to fund Government expenditure through tax enhancement is welcome,” read the research note.
However, the estimate on revenue generation was made before a cap on thresholds was later made by Treasury.
Government has already stated that it will ring-fence the 2 cents tax to ensure that it is directly channelled to service delivery and programmes that will directly benefit the people.
Parallel market rates
Prof Ncube said the falling parallel market exchange rate between the US dollar, the bond note and RTGS balances was expected as rates were being driven by “over-speculation”.
He said the rates are expected to reach parity, or even decline further.
“There was over-speculation in the parallel market when the rates were going up. We have guaranteed value and the conversion rate of 1:1 and rates should move to that parity rate or even lower.”
By yesterday, the parallel market exchange rate had dived from an all-time high of 1:6 (US$100 for $600 RTGS) reached last week to 1:150 (US$100 to $150 RTGS).
However, there were very few sellers.
Treasury contends that the cash shortages will be solved in time once the full effect of the economic stabilisation programmes takes root.
“This cash shortage issue is not new. There are many reasons behind it. It’s got to do with the confidence and also the banking sector. We are working on building this confidence, recapitalising the banks but also making sure that we limit inflation erosion on whatever cash balance the people have.
“We issued the 5 percent reserve during the monetary policy statement, but we also hope that the introduction of FCAs will help the citizens to put more money into the banking sector so that money returns to the banks. It’s a matter of building confidence, showing that we are dealing with the micro-balances and people believing in what we do.
“It’s not a quick fix, it’s not a silver bullet that will heal in one day, it takes time, but I would like the nation to be patient. We will fix it for the benefit of everyone,” said the Finance Minister.
A snap survey conducted by The Sunday Mail in some major supermarkets in the capital yesterday showed that prices were gradually adjusting to normal levels. Retailers were restocking following stock-outs induced by a bout of panic buying last week.
Some retailers were rationing the quantities consumers could buy in order to guard against hoarding.