Almot Maqolo, Staff Writer 
EXPERTS are keeping their fingers crossed that the central bank will intervene decisively next month, to alleviate the myriad challenges that are throttling Zimbabwe’s economy.
Speaking to The Financial Gazette — the country’s number one business publication and prime voice for industry and commerce — the experts said this week that the apex bank’s February monetary policy statement (MPS) needed to address the current liquidity crunch and high interest rates, while also allowing the free trading of the ZiG on the market, among other things.
This comes as President Emmerson Mnangagwa’s office has scheduled a crucial meeting with business and labour in Harare today, amid the growing threat to companies and jobs due to the dire state of the country’s economy.
The chief executive of the Zimbabwe National Chamber of Commerce (ZNCC), Chris Mugaga, was among the experts who said the current liquidity squeeze and high interests rates were suffocating both business and the economy.
“The liquidity crunch is real. The market is quite dry, especially in terms of the ZiG. Businesses are struggling because ZiG availability is a major issue.
“Interest rates are also too steep, and a reduction could encourage borrowing and stimulate economic activity in the country.
“We need to review them to about 15 percent to 20 percent, in line with inflationary trends,” Mugaga said.
He also recommended a reduction of the statutory reserves ratio for financial institutions.
“The current level of 30 percent is restrictive for lending. A reduction to around 20 percent would be more optimal in the current environment,” Mugaga added.
Further to this, he said, the ZNCC was also hoping that the forthcoming MPS would reflect a growing alignment with the fiscal policy.
“It is very important for policy coordination at both the fiscal and monetary levels.
“The central bank governor must consider aligning the monetary policy to the direction and philosophy of fiscal policy to ensure cohesive economic management,” Mugaga further told The Financial Gazette.
He also warned against what he called “central bank overreach” — particularly with regards to lending to the government.
“The RBZ must maintain a tight position and resist pressure to bail out the government.
“Opening an overdraft facility for the government could further destabilise the ZiG,” Mugaga also said.
He also said he expected the MPS to address non-convertible debentures (NCDs) — a type of debt instrument that cannot be converted into equity or stocks — which he argued had lost nearly 50 percent of their value.
“These instruments are not tradable or attractive. The central bank must address this issue to prevent financial instability in the private sector,” Mugaga said further.
Economist, Nyasha Kaseke, said while the tight monetary policy that the RBZ had maintained since last year had since stabilised the exchange rate, the central bank needed to show consistency.
“The exchange rate has remained relatively stable for the past two months, indicating that the tight monetary policy is working.
“The upcoming monetary policy statement should maintain this stance, while ensuring inflation remains low, so that consumers can continue to afford goods and services.
“Stability in the exchange rate is crucial for achieving economic growth targets,” Kaseke said.
Another economist, Victor Bhoroma, said that the MPS should address the country’s current exchange management, which he said was not reflective of a market-driven foreign exchange system.
“The central bank must ensure a managed floating exchange rate, allowing corporates to source and sell foreign currency through their banks.
“This will reduce exchange-related losses and significantly improve market confidence.
“There is a massive shortage of both the local currency and US dollars in the formal market.
“The central bank needs to ensure liquidity that can sustain at least 10 percent to 15 percent of the total money supply in the economy,” Bhoroma said.
“It’s also high time the central bank either commits exclusively to the US dollar or strengthens the local currency by stabilising the foreign exchange market.
“There must be incentives for account holders to deposit money, especially foreign currency. Confidence in the banking sector is crucial for economic stability,” he added.
Economist and research fellow at the Public Policy and Research Institute of Zimbabwe (PPRIZ), Vincent Moyo, also emphasised the need to rebuild trust in the local currency.
“Currently, economic agents trust the US dollar more than the ZiG, which is mainly sourced from the black market.
“The monetary policy must reduce speculation and black-market activities to stabilise the economy,” he said.
Yet another economist, Stevenson Dhlamini, called for differentiated interest rate policies.
“We expect the monetary authorities to develop a variegated interest rate policy that offers lower rates to strategic industries, especially those focused on import substitution,” he said.
Dhlamini also called for a clearer roadmap on the country’s de-dollarisation programme.
“This will reduce speculation and encourage long-term lending by financial institutions.
“A well-communicated strategy can support foreign currency reserves and boost the value of the ZiG,” he added.
All this also comes as business continues to reel from the country’s ailing economy and the unintended consequences of recent interventions by authorities to steady the ZiG and curb inflation.
While these policy measures have brought relative stability to the market, experts who spoke to The Financial Gazette last week said that they had also created a liquidity crunch that was now stifling economic growth and threatening many businesses and livelihoods.
An analyst at IH Securities, Vanessa Machingauta, said the current liquidity situation was being felt on the Zimbabwe Stock Exchange (ZSE).
“Concerning the ongoing current liquidity crunch, we have definitely seen some impact on the ZSE, with prices trending below the yearly average as at the end of December into the new year.
“Activity has been relatively subdued, and using our database, average daily trades fell nine percent quarter-on-quarter in real terms between the third quarter of 2024 and the fourth quarter,” she said then.
The chief executive of the SME Association of Zimbabwe, Farai Mutambanengwe, also bemoaned the gravity of the liquidity crisis.
“The liquidity challenge has been a severe problem for many businesses, particularly because it is emanating from the non-payment of suppliers by the government.
“What is happening is that the government is not paying suppliers or it’s paying them late. So, this affects their viability and their ability to meet commitments to workers and other suppliers, and ultimately impacts the whole economy,” he said.
Mutambanengwe further reiterated the urgent need for a market-determined exchange rate and timely payments by the government to stabilise the economy.
Financial analyst, Brian Nyakabawo, also highlighted how the liquidity crunch had negatively impacted the stock market.
“The stock market has experienced reduced trading volumes due to limited access to investable funds.
“This has led to increased volatility, declining market capitalisation and dampened investor sentiment,” he said.
As a result, many investors had had to sell stocks to cover their short-term operational needs.
“The sell-offs have driven prices down, further eroding market confidence,” Nyakabawo added, saying further that the ongoing liquidity challenges were creating a negative cycle that hindered investment and growth.
However, the RBZ’s deputy governor, Innocent Matshe, defended the central bank’s measures — citing successes in stabilising the local currency and prices.
“In 2024, the reserve bank walked the talk on sound monetary policy, achieving relative price and currency stability.
“The ZiG has been fully backed by foreign reserves since April, and the economy has shown resilience.
“The anticipated rebound in economic growth from two percent in 2024 to six percent in 2025 will support optimal monetary policy management and further entrench stability,” Matshe said.
Speaking during a tour of Glytime Foods Manufacturing’s plant in Sunway City last week, Finance minister Mthuli Ncube said the government’s liquidity management programme was designed to maintain macro-economic stability.
“The issue in terms of liquidity has really been the protection of the domestic currency, where we wanted to curtail the growth of liquidity because any excessive growth of liquidity will impact the volatility of the currency, instability and hence macro-economic stability in general and inflation trends in general,” he said then.
newsdesk@fingaz.co.zw
