ANALYSTS have urged the government to be more consistent in policy-making for the sake of market confidence and to reduce speculative activity.
The weakening of the domestic unit has seen prices of goods and services rising sharply, resulting in the resurgence of inflation.
Authorities have over the past few weeks introduced a cocktail of fiscal and monetary measures to save the local unit from collapse.
In its latest weekly economic research report, Zimnat Asset Management stated that the actions taken by the Monetary Policy Committee (MPC) seem to be a complete response to the problems brought on by exchange rate volatility.
“This is because some of these measures have been reversed before they come to fruition. The removal of 90-day liquidation of export proceeds comes barely a fortnight after the Treasury announced its restatement.”
The Confederation of Zimbabwe Industries (CZI) commended the measures but said the major risk that could emerge is partial implementation of the measures.
“This might take the form of interfering with the exchange rate, especially given that it was suppressed for a long time and stakeholders are already beginning to feel the pain associated with the liberalisation process. If interference emerges, this will result in continuing distortions as reflected in the widening parallel market premium, which will then undermine confidence and lead to an intensifying “blame game” between government and the business community,” CZI said.
CZI said it will take some time for the impact of the measures to trickle down to the whole economy.
“If the measures are properly implemented, the parallel market exchange rate is expected to start showing stabilising momentum towards the end of June 2023. Once stability is achieved, the blended inflation rate would be expected to mask the full impact of the ZWL$ inflation,” CZI added.
With businesses losing confidence in the local unit, economists say more needs to be done to build confidence around the Zimbabwean dollar.
“Policy inconsistencies create uncertainties in the economy, which increase the country’s risk premium. The inconsistencies also erode confidence, which weakens investment and consumption and also weakens economic growth in the long run,” economist Prosper Chitambara said.
“So, to improve policy consistency, there is a need for dialogue before policies are implemented, so partners and stakeholders need to deliberate and reach a consensus and once they have reached a consensus, the policies can be implemented because, obviously, in any policy, there are trade-offs, so the advantage of dialoguing is that you narrow those trade-offs.”
Economist Vince Musewe said policy inconsistency costs money and creates uncertainties.
“Policy inconsistencies affect good planning and have an impact on profitability. No investors like moving targets and no project can be successful if the rules change midway. As a result, investors do not invest,” Musewe said.
“Also, it increases perceived country risk and impacts on all sectors of the economy. Any government should be consistent in its policies to allow development and certainty,” he added.
“Policy inconsistency and contradictory statements from government officials have also made doing business in Zimbabwe a nightmare,” Tambo said.
“Proper institutions need to be put in place that can aid investors in knowing the true picture of the opportunities in Zimbabwe, not a situation where investors’ businesses are threatened with closure overnight and the next morning the same sentiments are reversed.”
Tambo said the role of institutions goes beyond the legal framework.
“The government’s attitude towards markets and freedoms and the efficiency of its operations are also very important; excessive bureaucracy and red tape, overregulation, corruption, dishonesty in dealing with public contracts, lack of transparency and trustworthiness, and political dependence of the judicial system impose significant economic costs to businesses and slow the process of economic development,” said Tambo.
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