ED rapped for pegging fuel prices at black market rates

ECONOMISTS and analysts yesterday said the decision by President Emmerson Mnangagwa to peg the new fuel prices at the parallel market rates proved government’s insincerity when dealing with the issue of the value of the bond note versus the US dollar.

BY VENERANDA LANGA

Mnangagwa on Saturday said government had adjusted the fuel prices “as predicated on the ruling official exchange rate of 1:1 between the bond note and the US$, and also on the need to keep fuel retailers viable”.

Most people said the statement was an acknowledgement by government that the 1:1 rate was unsustainable.

Finance minister Mthuli Ncube, during the 2019 budget presentation last year, refused to take suggestions from opposition MPs to demonitise the bond note and redollarise. Ncube argued government would not back down from the decision to place the bond note at par with the US$, vowing not be controlled by parallel market rates.

Economist Eddie Cross said it was not rationale for government to continue maintaining the exchange rate at 1:1.

“They must now say the US$ is not level to the bond note and then find the real value of the bond note. This is completely crazy and I think we have absorbed a lot of inflation from RTGS (real time gross settlement) to the US$. What they must do now is to adjust the value of the economy because pricing fuel on the black market forces means they are formalising it (black market). It is nonsensical,” Cross said.

“They will now need to solve the exchange rate and adjust salaries because the present levels cannot be sustained. This situation is very ridiculous and needs to be solved urgently because for a long time, all of us have been saying they should demonetise the bond note.”

Investment analyst Emmanuel Mugadza said government was now acknowledging that due to demand and supply, the exchange rate was never 1:1.

“Mnangagwa’s position is a move towards encompassing acceptance by government that the rate is not 1:1. That was said in application to fuel prices only, but what it means is that it will filter to other products because they are going to be priced with this new rate,” Mugadza said.

“It is a step towards acknowledgement because government cannot just wake up to say this is the new exchange rate. They want to do it gradually. In my view, what needs to be done is to address the issue of production if we were to have currency reforms.”

Former Finance minister Tendai Biti (MDC Alliance) accused the government of employing “fictitious economics”.

“They are still continuing with their fictitious economics and trying to panel beat the economy, and what is going to happen now is massive inflation and fuel queues that go up to 50km,” Biti said.

“This rating to the US$ is absolutely messy economics – and Ncube is a disaster because you do not tamper with artificial currency when our bond money supply is over $12 billion and it raises inflation. They only need to re-dollarise the economy.”

Biti said the Zanu PF government had been talking of a $1,3 billion budget deficit when already civil servants were clamouring for massive pay hikes.

“We are going to see massive protests, and this time no one will call for demonstrations, but people will just stay at home because there is no point in giving people bond notes. They need to liberalise the capital account and allow dollarisation to take place. Do not interfere with the economy – it will punish or crush you,” he said.