Zimbabwe Finance Minister Says Suspension Of Banks Loans Was A Big Hammer But It Was Needed

The suspension of loans by banks announced by President Emmerson Mnangagwa on 7 May was a big hammer but it was needed, Finance Minister Mthuli Ncube told the Senate yesterday.

Responding to questions, Ncube said the impact was that it had halted the parallel market somewhat.

“It was a big hammer but it was needed. However, the hammer was lifted yesterday to make sure that those who were in the wrong are careful. So the investigations continue but lending has resumed. The impact is, this has halted the parallel market somewhat. We have seen that and we are pleased with that,” he said.

Ncube said the temporary suspension of loans and the opening of borders for basic needs were some of the measures that the government was taking to protect the local currency and to ensure affordability and availability of goods to citizens.

“Industry is still getting a lot of incentives through the various tax rebate schemes that I always bring before this House every time you approve the budget. So they are getting those benefits as well as rebates for retooling.

“They should have been retooled by now. We cannot keep retooling forever. We should have retooled and the cost of production should have improved and productivity should have also improved. So, industry has been protected and it is now time to protect and support the citizens.”

Q &A

HON. SEN. KAMBIZI: Thank you Madam President. I am quite pleased to see the Minister of Finance here after a long time. We have been clamouring to have him in here and my question is directed to him. Madam President, all the streets of Harare are flooded with money changers selling all types of currencies from USD, Zimbabwe dollar, RTGS, Pula or the Rand. The black market rate is skyrocketing at USD1 to between $450 and $500. May the Hon. Minister favour this House by giving us a full explanation as to what Government policy is with regards to people who sell money on the streets? What measures are being put in place by the Government through his Ministry to arrest the skyrocketing rate of exchange that is running at a black market speed, rendering all Zimbabweans earnings useless?

THE MINISTER OF FINANCE AND ECONOMIC DEVELOPMENT (HON. PROF. M. NCUBE): Thank you Madam President. I thank Hon. Sen. Kambizi for the question regarding the exchange rate, money changers and the parallel market. The players in the parallel market are numerous. It is not just the ordinary citizens at the street corners. It is also the corporates. It is also banks. I think we know what money changers do – they change money. So their business is clear but illegal at the same time. Some of the corporates are going into the banking sector to borrow cheaply because of low interest rates and use those resources to acquire inventory, to store the inventory or to put it on shelves at higher exchange rate. Every time they do that, then the whole cycle starts all over again. We have a situation where even corporates were pushing up the parallel rate. This is announced by some faceless people that there is a new parallel rate. I do not know where that is coming from.

Some of the banks were doing exactly that on their own account using their own resources, taking positions in the market. There are numerous players and all trying to get easy money, which then makes the exchange rate unstable and creates a power rate whose level is very different from our official auction rate or the willing buyer willing seller rate. So, what actions have we taken and continue to take? Let me be clear – we are using both the ZW dollar and US dollar. It is not one or the other and there is a very good reason why we are doing that. The good reason is that we have sanctions on us, challenges with credit lines and so without credit lines, you have to be creative. So we introduced the auction, a surrogate credit line access mechanism where we are accessing the US dollars that are already here through the 20% surrender tunnel as well as the export retention scheme that is in place for exporters as well as whatever Government needs to pay through Treasury sells onto the auction to pay civil servants another Zim dollar liability. So we need both currencies and I had to be clear about that from the onset.

I also hear arguments about US dollarisation or ZIM dollarisation. Please, I urge the public to desist from that argument. It is not a useful argument because we need both currencies. If you go the root of ZIM dollars alone, for now it is too early to do that. It would mean that we will not allow you to hold US dollars like in any other countries where you cannot use US dollars to shop. We will also not allow the banks to keep foreign currency. We cannot let them have one and half billion US dollars in the bank. We cannot allow that because a mono currency regime does not permit that. Furthermore, companies would have to restate their balance sheets in a manner that happened in 2008/2009 which is very dangerous. So, please understand that we need both currencies and the current system but we need stability.

So what are we doing to deal with stability? It starts with the key fundamentals of a stable currency that we do not want huge budget deficits. As I speak, in the last four years, we have not been running large budget deficits. In some years like in 2020, we even ran a surplus. In 2021 however, we had a very small deficit, one and half percent deficit which is within the three percent target that SADC has mandated all countries to run their countries properly. That is where we start – fiscal discipline.

hen we have monetary policy discipline as well. As His Excellency announced the previous week, the target for MO which we all worked together with him should be zero percent growth in reserve money growth for the rest of the year. It is very important that we keep tight monetary and fiscal policy and that they are coordinated. It is also important that we continue to support our exports which we are doing through various incentives. Our remittances are coming in, so our current account is positively strong. Those fundamentals are the first order of business. Then I now turn to the behavioural. These start with the behaviour of our financial institutions in terms of disintermediation of liquidity or monetary policy enactments where banks with some corporates or individuals are found rather than channeling liquidity into the real sector which is called the monetary transmission mechanism liquidity which finds its way onto the parallel market or stock market. So, we now have a speculative bubble which we had to clip through the suspension of lending that we put in banks. It was a big hammer but it was needed. However, the hammer was lifted yesterday to make sure that those who were in the wrong are careful. So the investigations continue but lending has resumed. The impact is, this has halted the parallel market somewhat. We have seen that and we are pleased with that. This is also a behavioural issue on the stock market where we tightened regulations. What was happening in the stock market is very similar to what was happening with ecocash, where you have got a stock broker with a trust account, which sits with a bank. Below the trust account, we have a series of accounts belonging to many individuals but you cannot see those accounts. So, whenever our shares are being bought or sold, money just moves below the trust account but you do not see the movement in the official account. So, things were happening here but also the money was being moved from one individual to another, which is called third party account and this created a loophole for trading on the parallel market. At the same time, creating an asset bubble in the stock market which was very unhealthy and so we had to prick that bubble and we sufficiently did so as of now. We did well in terms of dealing with behaviour.

Of course while we have a dual currency, we feel we still need to strengthen the demand for our domestic currency. So, the MTT tax was increased for US dollar transactions to signal that we prefer our own currency. We have done a lot for what it is worth and I will be very happy to circulate to Members through your office the measures we have taken, one by one, to try and stabilise our currency.

We are also quickly aware of the transport woes. I am digressing, you did not ask me about transport but His Excellency also opened the market for other players to come in and this is all designed to create competition and make transportation easy and the cost of transportation affordable. We have done a lot to stabilise our currency. Let me explain the action that we took at the beginning of the week regarding opening up borders to basic goods. Two things were happening; to start with, we have a global situation where we have imported inflation. Inflation has been rising globally since the last quarter of 2021 due to the perceived success of the global vaccination programme and the opening up of global value chains. Inflation has been going up so has been oil price. That is where it started and by the time we got to the conflict now happening in the eastern part of Europe, that only accelerated what had already started. So, now we have inflation being pushed through our economy through the fuel channel and other goods and raw materials that we are importing, which is the global value chain. It is also coming through the fertilizer, cooking oil and wheat market channel. That is something we should be wary of that globally, we might be heading into a very tight food security challenge for the rest of the year and this is worldwide, and not just for Zimbabwe. Secondly, locally we have seen a spike in prices for no reason really other than profiteering. So we had to act and try to make sure that basic commodities for the global and local reasons are available to citizens at affordable prices. So, we opened up the border for basic needs and I think that is a good thing that Government has done to really look after citizens and to ensure affordability and availability of these goods.

Industry is still getting a lot of incentives through the various tax rebate schemes that I always bring before this House every time you approve the budget. So they are getting those benefits as well as rebates for retooling. They should have been retooled by now. We cannot keep retooling forever. We should have retooled and the cost of production should have improved and productivity should have also improved. So, industry has been protected and it is now time to protect and support the citizens. That is what we have been doing in terms of the mix of policies as they say policies have winners and losers. In our own assessment, this bouquet of policies seem to indicate that there are winners than losers and that is what we want in any policy mix. I thank you Madam President.

HON. SEN. KAMBIZI: I wanted to ask the Hon. Minister to zero down to the level where I am, where I represent the ordinary citizen. All this vocabulary the ordinary person cannot understand. What I am merely asking the Hon. Minister with the ordinary citizen in mind is to explain in a manner that the ordinary mbuya back in the rural community and ordinary citizens can understand because the rate keeps going up. Our own ZWD – the brand new notes have flooded the streets and I presume they are coming from our banks which fall under the command of the Ministry of Finance. Where is that money coming from? Is it not controlled? Since last year we have been talking about the exchange rate on the black market and it is not stopping despite the loan arrangement that we have done, it is moving much fast. Now, all Zimbabweans have been reduced to paupers because of that. What is the Ministry doing to at least assist the ordinary citizens? Hon. Minister, you can award salary increments, for example an ordinary teacher earns RTG$32 000, divide that by $400 on the black market because when a teacher goes to the bank he cannot access the USD. He has to go to the streets and ends up holding US$80. The people then think that the Government is not doing much. That is your Ministry Hon. Minister.

HON. PROF. M. NCUBE: Hon. Kambizi has highlighted three areas and I tried to decipher what he was talking about. On the civil servants, what he said is not correct, I have to disagree with him. He said that the teacher has no access to USD, which is not correct. The teacher has access to US$175 hard currency. That is exactly what we have done in terms of civil servants’ salary. We have the US$75 which we link to COVID and US$100 which was added at the beginning of the year to make it US$175, so it is not correct to say that the teacher has no access to USD.

On what we are doing about the person around the corner, mbavha, matsotsi – we are arresting and fining them. We have the Financial Intelligence Unit that has got teeth and has been going after these criminals, be they companies, individuals but a thief is a thief even when you have got the best policemen in the world we will always have thieves. It is a continuous project trying to catch criminals when they think they have an opportunity. We have been chasing these people and that is why they run around whenever they see us.

From our own assessment, I think that the person on the street corner has become less important; the real culprits are now the big players, which players were then dealt with by temporarily suspending lending. That is what is going on; corporates are pushing the rates up through the goods that are sold in the shops. When we deal with prices, we are assisting the common person. When we open up borders and say tengai zvamunoda, surely we are helping the citizen. It cannot be said that Government is not doing anything; no it cannot be the case. We can disagree on degrees of effectiveness or policies but clearly we are taking action. Kana President vakasimuka kuti nhasi I am opening up the transport system and ZUPCO no longer has a monopoly, surely we are helping the citizens. It cannot be that we are helping anyone else other than the citizens.

HON. SEN. KOMICHI: My question to the Minister is: are we not in the same situation as we were in 2007/8 in which our ZWD was so pathetic that it failed to sustain our livelihood? As we stand, the public and civil servants are earning nothing. You disputed that US$80 and added US$175, it then came to US$255, still it is not a reasonable salary for any person to live on. Are you in control of the Government or you have lost it to the cabals?

HON. PROF. M. NCUBE: I want to thank Hon. Komichi for the question. Are we now in the 2007/8 era? First of all, we did not have a balanced fiscal position and we did not have tight monetary policies. We did not have the sort of fundamentals that you see now. Secondly, we also did not have the official dual currency that we have put in place which has allowed citizens, corporates and other agencies to utilise these currencies as they desire. We are not.

Coming to salaries, there is also a fallacy Madam President that the salary back in October 2008 for civil servants – we keep hearing a figure of US$540 per person but that is not correct because back then the effective salary was in fact half of that. It was about US$275 and I can prove it. The demands for a salary of US$540 are completely misleading and the kind of package that we have put in place is for civil servants and we will continue to do that.

Are we not doing a lot already as Government? I think we are and I said we are doing a lot for the teachers. We have a commitment to build institutional accommodation and we are doing that. Importation of vehicles duty free, supporting teachers in terms of school fees up to three children in a Government school of course. Nurses – we have similar slew of non-monetary benefits as well. Surely, we have really applied our minds and done a lot to support our hardworking civil servants and they are hardworking because I work with them. I just wanted to debunk the thinking that we have not reached the kind of October 2008 levels of salary because even that figure is actually fallacious.

HON. SEN. ENG. MUDZURI: Hon. Minister, you have been highlighting in all our budget sessions that there are about ten people who are crooked in terms of this economy. You have also said today that the corporates are in charge of the runaway inflation or currency. We have not seen any of these people being arrested and there is strong mistrust between your Ministry and the public in that they believe that all the corruption is on the exchange rate within the Reserve Bank. I do not know how you can undo that to the public to say why do you not arrest those people because we cannot continue to be told that there are crooks or thieves.

HON. PROF. M. NCUBE: We now know these crooked individuals. Some of them have already been arrested and some have been fined. I think that the honey-pot of doing the illegal activities is so rich that some of them keep coming back in one form or another. Those are the facts. So we have to keep on arresting them and re-arresting them, fining them and re-fining them. That is what we have been doing. It is not that we are not doing anything. We are certainly doing something and dealing with them. We are still going through this transition of both currencies and we need to live with some of these ugly facts but we are dealing with the culprits and we are fining them. InsiderZW