Taking Stock Kudzanai Sharara
The latest Reserve Bank of Zimbabwe Economic Review for the month of November 2018 compared to the previous month of October makes interesting reading.
These new numbers are telling us that some of the measures that Government has been putting in place in the last four or so months are making a huge impact on the structure of the economy and its monetary sector.
Starting with the structure of imports comparing November 2018 and October 2018.
While the import bill was slightly up between the two months, to $628,7 million from $592,3 million, what is revealing is how the import of fuel has been crowding out other imports, some of them probably more important than fuel.
While more than $126,8 million, representing the highest share of 20,2 percent in the month, was being channelled towards importation of diesel, medicine was struggling to get adequate funding with only $7,2 million down from $9,5 million having been allocated. Also crowded out were imports for durum wheat $10,4 million ($12,3 million in Oct) resulting in bread shortages, crude soya bean oil $5 million from $11,4 million and fertiliser $17,6 million from $8,7 million. Fertiliser is critical to ensure a successful farming season.
Fuel price increase justified
This structure thus justifies Government’s move to align fuel prices with foreign currency parallel market rates. Expectations are that demand for fuel will subside and the “excess” foreign currency can then be channelled towards other essential imports.
The productive sector is currently starved, with many companies now black listed by foreign suppliers for failure to service their credit obligations. Investors are increasingly shunning inward investments into the country as there is no guarantee that they will be able to repatriate their earnings or initial capital outlay.
Access to lines of credit are now mostly restricted to exporters, as they are the only ones who can give some sense of guarantee that they will be able to service them.
Hopefully whatever savings that are going to be made from reduced fuel imports will be channelled towards the productive sector, preferably to companies that can either develop exports markets or those that can produce import substitution products.
Monetary developments, a reaction to Mthuli’s policies?
On a month-on-month basis, broad money grew by 0,27 percent, from US$10 066,64 million in October 2018 to $10 093,7 million in November 2018.
The growth in money supply was largely attributed to a 32,43 percent increase in narrow money. Currency in circulation and demand deposits rose by 54,24 percent and 31,30 percent, respectively.
This is an interesting development as it came in a month when monetary and fiscal policies introduced by Treasury and the RBZ, were fully operational. At the start of October Finance and Economic Development Minister Mthuli Ncube introduced an Intermediated Money Transfer Tax of 2 percent.
At the same time, the RBZ also announced the separation of bank accounts into FCA Nostro and FCA RTGS and the two changes are likely to have forced those holding on to bond notes to release them into circulation, as reflected by the increase in narrow money by 32,43 percent. Currency in circulation and demand deposits also increased by 54,24 percent and 31,3 percent respectively. While it cannot be ruled out that the RBZ might have played a role in the growth in broad money by 0,27 percent, what happened on the transaction side paints a much better picture on the role played by the 2 percent tax as well as the separation of accounts.
During the month of November 2018, the value of cash transactions amounted to $321,75 million, a 3,2 percent increase from $311.62 million recorded in October 2018. This points to the shift away from taxed transactions. While the increase in cash transaction might not be much, just 3,2 percent, changes in mobile money and internet transactions also show the impact of the 2 percent tax.
The total value of mobile and internet based transactions stood at $4,99 billion, during November, a $1 billion variance from the $6,04 billion recorded in October 2018.
This can be attributed to several factors; the decline could be a result of illegal foreign currency dealers cutting back on their activities which now attracted a 10-year jail term.
It could also be a result of reduced supply of gold produce to Fidelity Printers and Refiners, resulting in fewer amounts being transferred to small scale miners for the portion which is surrendered according to the RBZ retention ratios.
Then there is the 2 percent tax which is likely to have reduced unnecessary transfers between accounts. It could also mean people choosing to hold liquid money in one form or another as a fall-back position.
November would normally be bonus month with lots of impulse spending, but it seems holding cash in whatever form was the preferred position.
One can also not rule out the impact of product shortages including the crippling fuel shortages which meant some transactions could not be conducted as planned.
This could be true as card based transaction values also decreased by 19,9 percent to $657,5 million in November 2018, from $821,3 million registered in the previous month. Further cheque transactions declined by 12,7 percent to $3,7 million in November 2018, from $4,2 million recorded in the previous period.
Given the above out-turn, one can be tempted to say Minister Mthuli’s attempt to cut spending on the part of Government, and also mopping liquidity through the 2 percent tax is working. What can however be debated is whether this will result in the intended prosperity or it will be just a wasted austerity.