SI 127: Is RBZ adjusting on reaction?

Inconsistent national economic policy leads to macro-economic instability.

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Reserve Bank of Zimbabwe Governor, Dr John Mangudya

When the Reserve Bank of Zimbabwe (RBZ) announced the introduction of Statutory Instrument (SI) 127 of 2021, the public was shocked, and businesses were thrown into disarray. Questions were asked about the possible impact on inflation – a lion that continues to terrorise the citizens.

Other analysts projected this would result in market-wide shortages of goods and services while a preliminary observation discovered US dollar price inflation, and this was to be expected. In a similar fashion, exchange rate movement on the parallel market widened while the official auction market rate continues its suspicious slow movement.

In short, the announcement came as a total shocker. It threatened exchange rate and price stability, which could end up reversing the set annual inflation target of below 10% by year-end. Don’t forget that monthly inflation for May speed up to 2.54% from April’s rate of 1.58%, the first time it has taken an upward direction over the past four months.

From a pragmatic perspective, SI127 was a bad move or still is. This uncertainty is stemming from a recent announcement by the Confederation of Zimbabwe Retailers (CZR) following a meeting between the board’s president Denford Mutashu and RBZ Governor Dr. John Mangudya.

Is the RBZ showing policy inconsistency again? Here is what’s been said:

“Dr. Mangudya told CZR that SI127 targets those abusing auction funds, manipulators of the exchange rate and those that do not bank funds,” reads part of the CZR statement.

“He said SI127 is meant to ensure compliance.”

CZR went on to thank President Emmerson Mnangagwa, Vice President Dr. Constantino Chiwenga, Finance Minister Prof Mthuli Ncube, Industry Minister Dr. Sekai Nzenza and Dr. Mangudya for listening to the pleas of business not to embark on a heavy-handed approach but target the abusers.

“This shows that we have a listening government that wants to see the growth of the economy,” CZR said.

Now the question is, has the Central Bank reversed other regulations and punitive measures announced in SI127? If yes, this shows zero consistency and a trail of not well thought through decisions adjusted on reaction.

A number of policy inconsistencies have occurred in Zimbabwe since the coming in of the second republic in post-coup fashion in 2018. Interestingly, all parties, which are the government, private sectors, opposition party movements and the general populace are speaking about economic revival. It is, however, strategies that are on a divergent path.

Inconsistent national economic policy leads to macro-economic instability amidst the poor policy coordination.

Besides criminalising misuse of funds obtained from the forex auction market, SI127 also made it illegal to refuse to take ZW$ payments at the official exchange rate – charging goods only in foreign currency; sell goods at an exchange rate above the official exchange rate; give customers a discount for paying in forex and to issue a ZW$ receipt for goods paid for in forex.

In relation to prices, CRZ urged businesses to continue to price products and services as was before (pre-SI127) and avoid panic “as the matter has been resolved.”

“CZR assures the public that there will be zero tolerance on arbitrage, profiteering and artificial shortages,” it said while imploring businesses not to aid or fuel foreign currency parallel market and instead increase banking of foreign currency.

Meanwhile, RBZ has already cracked whip on auction funds abusers including National foods Limited and 17 other entities.

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