Mthuli’s latest measures: An ‘admission’ of guilt, a new tax, but still short on confidence

Mthuli blames retailers for inflation, but policy steps say otherwise (pic: Sunday News)

While touring supermarkets in Bulawayo at the weekend, Finance Minister Mthuli Ncube blamed retailers for price hikes. But his latest measures are an admission that the source of rising inflation sits closer to home.

Ncube, through fresh economic measures announced Monday, is targeting money supply growth from central bank, while acknowledging government’s own previous failures to create enough demand for the local currency. However, his new policy steps fail a key test – restoring trust in the Zimbabwe dollar, and in government’s capacity to manage the currency.

Building Zimdollar demand

Among the new measures, Ncube said Treasury will now fund the Zimbabwe dollars paid to exporters when they surrender 25% of their forex. Government will then use the forex that it buys to service central bank’s foreign currency loans, Ncube says. Industry officials and three government commissions had told the government last week that the Zimdollars printed by RBZ to pay the 25% was contributing to money supply growth. Ncube hopes that that this new measure will limit money supply, and help to tame inflation.

Ncube is now trying to save the Zimdollar by also making sure that government departments will “substantially now collect their fees in local currency”. Payments to ZESA, which says low tariffs are bad for power supply, will all be in Zimdollars for anyone who is not an exporter. Customs Duty will also be in Zimdollars, save for payments for some luxury goods.

Previously, government has admitted that payments to contractors were one of the main sources of inflation. Because Zimbabwe has no external funding, it has had to go it alone to rebuild infrastructure by using its own resources. The downside is that contractors paid partly in Zimdollars do what many will do in this environment; quickly take their Zimdollars to buy USD so as to hedge themselves against inflation. This is a signal that the market does not believe that the Zimdollar can retain value, an indictment on Ncube and central bank’s failure to build confidence.

What’s in it for business?

For business, there is much to worry about in Ncube’s new measures. He is introducing a 1% tax on all foreign payments to help him raise money to pay central bank’s foreign creditors.

“Government shall create a debt redemption fund to service other external liabilities in line with the arrears clearance program. These will be funded through new levies and other resource mobilisation initiatives,” Ncube says.

Exporters must also now use their export earnings within 90 days or have them sold at the interbank rate, a policy flip back to a measure that was dropped only two years ago when businesses said this was damaging them.

Such measures will further undermine confidence, and only further weaken trust between government and business.

Auction’s last legs?

Ncube is also throttling the forex auction, saying only US$5 million will be allocated there weekly. Last week, only US$15 million was available at the auction, while demand was about US$60 million. Given the gap between what the market wants and what Ncube is offering them at the auction, the new measure indicates that he too has finally lost faith in the auction as a forex market.

Since the return of the Zimdollar in 2019, authorities have done much to enforce currency stability; from banning Old Mutual from the stock exchange, suspending EcoCash, even banning lending, hiking interest rates to the world’s highest levels and threatening arrests. What they have done less is working on the one thing that would have supported the currency – being consistent, and building confidence in their ability to manage the currency.


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