President Emmerson Mnangagwa sold optimism in his state of the nation address Thursday, saying a period of exchange rate stability shows that his policies are delivering. But not everyone is convinced that it’s time to break out the festive whiskey.
The Zimbabwe dollar has held steady on both the formal and parallel markets over the past two months, following the introduction of the foreign currency auction and a tighter leash on money supply.
After a lull that followed two years of exchange rate turmoil, in which his government desperately ran from one policy measure to another, it was no surprise that Mnangagwa made sure to mention the exchange rate very early in his address.
“Our Transitional Stabilisation Programme has delivered and there are causes for optimism,” Mnangagwa said. “My Government is indeed encouraged by the current economic stability, evident since the launch of the foreign exchange auction system in June. The system has resulted in the stability of the foreign exchange rate as well as the prices of our goods and services.”
The fuel queues, a mark of policy failures since he came to office, were gone, he also pointed out.
“Since my previous address to this August House, fuel supplies have stabilised as a result of a raft of policies put in place by my government,” he said.
Energy investments were on track, he added, and Zimbabwe would in time be a net exporter of power. The first half of the year had seen a 4.9% growth in exports, compared to last year. Forex receipts were better than anticipated, up 18% at the end of August.
Road construction was progressing well, led by local contractors.
All this, he said, showed that “we are on a new path”.
However, earlier in the week, industry warned that while the exchange rate stability was good progress, it is still not yet sustainable.
“This is a very fragile stability,” the Confederation of Zimbabwe Industries (CZI) said in its budget proposal document to Finance Minister Mthuli Ncube. Currency stability, the CZI worries, is riding on potentially harmful liquidity shortages.
“This stability has been achieved off the back of extremely tight money supply control resulting in an acute shortage of local currency for transactional purposes,” said CZI, while acknowledging that tight monetary policy was necessary.
‘No Z$18 billion here’
In his speech, Mnangagwa also flaunted the Z$18 billion rescue package announced on May 1 to help key industries recover from the impact of COVID-19.
“To mitigate the negative impact of the COVID-19 pandemic, the Government availed Z$18 billion Stimulus Package for the productive sectors, vulnerable social groups, and provision of public services, especially health, water and sanitation,” the President said.
But, even this shows why businesses will be cautious about his optimism. According to CZI, this money was never released to its members.
“Companies indicated that no funds were accessed under the rescue package. More focus was on ensuring minimal disruptions to business operations with what was available on hand. Other players have made indications to their bankers but they have not received responses yet – no funds have been availed,” CZI says in its report.
The CZI suggests this money was not released because Treasury wants to control money supply. However, this shows that what Mnangagwa sees as progress, is not immediately showing where it matters most in the economy.
The damaging teachers’ strike, for example, only got a fleeting mention in his speech.
He said: “Government takes note of the legitimate calls for better working conditions by our teachers, health workers and public service in general. We will do our best to ameliorate their concerns and improve their plight.”
After two desperate years of trying to steady the exchange rate, the temptation for the Ministry of Finance to celebrate is strong. But that craving must be tempered by a grounded search for pillars to shore up the currency for longer.
This period of currency stability is a step forward. What it is not, just yet, is a final destination. To get there will take more bold steps not only to just stabilise the exchange rate, but to grow industries and put money in the pockets of workers.