The first thing John Mangudya thought he needed to say, standing up to speak on Wednesday, was that Mthuli Ncube was well within his rights as Finance Minister to tell central bank what to do with the exchange rate.
According to Section 27 of the RBZ Act, Mangudya said, it is the Finance Minister’s job to set exchange rate policy.
There is significant coordination between the fiscal and monetary authorities, he insisted. “It is a close-knit relationship,” he insisted.
What followed at that press conference, though, showed otherwise.
Of course, Mangudya was right that the Finance Minister has a right to set exchange rate policy. But, with the latest set of measures, he was only telling half the story when he said RBZ still has a role to “ensure that that formulated policy is implemented”.
But by announcing a “taskforce” that will in fact do the implementing, Treasury is signalling to the market that it has lost faith in RBZ’s handling of the exchange rate.
Ncube and Mangudya never seemed like they would be a pair. Their approaches to policy were always different, and it didn’t take long to show.
Not long after his appointment as Finance Minister in September 2018, Ncube told reporters in New York that what Zimbabwe needed was shock therapy.
“My preference would be more of a big bang approach because every day counts in terms of cost,” Ncube said.
Soon after, Mangudya, appearing before a Parliamentary committee, said where others choose a “big bang” approach to policy, his style was to be conservative and to take things slowly.
At another meeting in 2019, Mangudya again insisted: “For a start, we thought of being conservative…when we graduate, we will do what is right.”
On Wednesday, Ncube announced a new direction on managing the exchange rate, something that has proved elusive so far. A new taskforce that includes members of the Monetary Policy Committee (MPC) and the Presidential Advisory Committee (PAC) will now run point on the currency. Tellingly, Ncube himself will head the new taskforce, which will work from Treasury, and not from the central bank.
“The Task Force will be chaired by the Minister of Finance and will meet at least once a week to review the conditions in the markets, monitor the behaviour of key variables such as the exchange rate and inflation, and to ensure that the measures that I outline below are expeditiously implemented. The Task Force will put in place additional policy measures, where necessary,” Ncube announced.
There was no detail on who from the MPC and PAC – some of whom may have vested interests – will sit on the taskforce.
The interbank market, introduced in February 2019, was not working, Ncube admitted.
“Zimbabwe has had no transparent and effective foreign exchange trading platform for a long time. Consequently, official rates have not been effectively determined, while a thriving parallel market has developed,” Ncube said.
Treasury, apparently, believes it can manage the currency better than Mangudya’s RBZ.
And so, we ask: Mangudya clearly can no longer be trusted to do one of his main jobs. So, why was he reappointed in the first place, and why is he still in the job?
We recall George Charamba, President Emmerson Mnangagwa’s spokesman, mocking those who had dared hope for a fresh pair of hands at RBZ.
“The President is very clear on the Reserve Bank governor’s tenure and his performance. Not only is he there to stay, but the President is about to renew his contract for a second time,” Charamba said in November 2018.
Yet, clearer and less arrogant heads had known for a long time that some change was needed. But the erosion continued.
Allegations against senior officials at the Bank were dismissed as the work of social media alarmists. Leaks of new banknotes, the freezing and unfreezing bank accounts of alleged “forex manipulators”, plus a series of poorly communicated policy steps all undermined what little confidence remained in RBZ.
That the market has now lost all belief in both RBZ and Treasury shows. It shows in how business and consumers respond to policy decisions – doubt, derision and a rush to buy US dollars.
Mangudya acknowledged the confidence crisis on Wednesday, saying sentiment was the main factor driving the exchange rate, and not forex inflows. That has been clear. What has been less clear is what Treasury’s plans to do about it.
That plan, most certainly, cannot include retaining a discredited governor in his job, then emasculating him, and then keeping him in his job still.
It shows the same sort of hesitation that the authorities appear to see in Mangudya. It is, in the end, the sort of policy cowardice and inconsistency that has eroded confidence in the Ministry of Finance.
Government’s options are clear; sack the man they have obviously lost confidence in and find a governor they can trust to do a governor’s job. Either that, or simply live with him as they had chosen to.
Because, let’s face it, trying to do his job does nothing but give Treasury yet another opportunity to show the country more of Government’s usual clumsiness.