BULAWAYO – Lack of industrial productivity is to blame for Zimbabwe’s economic collapse, not bond notes, Reserve Bank of Zimbabwe (RBZ) governor John Mangudya said on Thursday.
Zimbabwe was earning less foreign currency putting pressure on the central bank to look for extra money in order to pay for imported goods and services.
“There is no economy in the world which can have a strong currency without a strong production base,” Mangudya told MPs during a pre-budget seminar in Bulawayo.
“We consume 10 million litres of cooking oil monthly yet the country only supplies one month’s worth of soya beans to produce oil. For bread in this country, you are only supplying wheat for three months which means wheat for nine months has to be imported. The country relies on imports and is importing basic goods because there is no production.”
With constant heckling from some MPs shouting “thief”, Mangudya said MPs should study the symptoms of why the country was struggling instead of focusing on the manifestation of the economic challenges.
“We have high imports and low competitiveness. We can’t compete with rest of world yet we need to compete, so we can be able to export. Wherever you go you hear people talk about bond notes, forgetting it’s simply because there is no production. A strong currency is as good as production but if you are producing nothing you can’t have a high currency and the foreign currency challenges are because of us not working very hard,” Mangudya said.
The government was spending more money than it had and that was causing a budget deficit, which was now the source of all economic challenges.
“This puts pressure on foreign currency, it’s the fiscal deficit putting pressure on consumer spending, causing Zimbabweans to spend more money to buy cooking oil, fuel because you have too much money in your pockets,” he told lawmakers.
“Fiscal deficits are the source of the money in Zimbabwe; are the source of deposits in this country, which are $10 billion.
“What we are saying is government is the employer, it is one that is spending money. It goes into the market to look for money to spend more and when that money is spent in the economy that money goes into your pocket and you go and buy sweets, cooking oil, diesel putting pressure indirectly on foreign currency. To cover the fiscal deficit, treasury bills and overdrafts from banks are used.”
The RBZ governor maintained that the economy was still operating a multicurrency system, with RTGS balances pegged at 1:1 with the US dollar.
“We should deal with fiscal rules and principles then things will come into shape and reduce our fiscal deficit. Bond notes are not the issue, issue is the money in circulation. The reason why the rate is 1:1 is because there are essential products that we need to import and have price stability. When we buy the imported fuel, electricity or other services using foreign currency, you buy using RTGS or pay using the 1:1 rate,” he said.
He noted that of the $10 billion deposits sitting in banks, only 4.5 percent of it was in bond notes and coins.
“Inflation is caused by increase in money supply and the question you should be asking is where does the money come from? The money in circulation in this country, called money supply, is almost $10 billion and in that amount only 4.5 percent are bond coins and bond notes. Therefore, the problem is the 95,5 percent, where is it coming from?” Mangudya asked.
The RBZ governor urged parliamentarians to raise such issues instead of placing too much focus on bond notes or how depositors are failing to access their money.
“Instead, you should be asking where the money comes from, that’s what you need to be arguing because it’s not the medium of exchange that is a challenge because people can use eco-cash, RTGS, bond notes. When people were panic-buying goods and services everyday, were they using bond notes? No!” he said.
He added that economic pressures were now on RBZ to fund expenditure when people kept money in their pockets instead of using it productively.
“The government’s domestic revenue is $11 billion versus bank deposits of 10 billion, so that burden we are carrying as the central bank is trying to fund those balances when you have more money in your pocket which you use to buy more imported goods such as beer, cooking oil and so on. Delta imports $5 million worth of concentrate from Swaziland so they can produce coke because the demand of Coca-Cola high because people have money in their pockets,” he said.