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Mugano Doubts Govt Interventions To Stabilise Economy

Mugano Doubts Govt Interventions To Stabilise Economy

Economic commentator Gift Mugano says measures implemented by the government to stabilise the economy in the course of 2022 such as interest rate hikes are unsustainable.

Speaking in a recent interview with Business Weekly, Mugano likened the measures that have resulted in relative economic stability to “national fasting”. He said:

We can’t sustain the current stability by refusing to pay contractors and other service providers and then thinking that we can hold on for a long time.

Likewise, we cannot sustain stability on the back of a 200 percent interest rate. The 200 percent interest rate is killing business.

There is no business that can run a business sustainably with the 200 percent interest rate. It can only be a thief which can pay back the loan fourfold!

This is why you see that businesses are now switching their ZWL into USD loans. This is unprecedented.

It defies logic for a debtor to run away from a soft currency which naturally is eroded by inflation to the advantage of the debtor at the expense of the creditor.

Mugano conceded that generally interest rate hikes are a necessary measure to mitigate inflation but argued that “Zimbabwe is a complicated economy.” He added:

The interest rate hikes, yes, slow down credit creation and contain the money supply in the process.

However, you must remember that money supply is also driven by national and export retentions.

For example, the current national budget shows that 42,3 percent of the budget is earmarked towards civil servants’ salaries and the remainder, that is, 57,7 percent is split between capital and recurrent expenditure (which excludes salaries).

So, if we consider the current of $1,9 trillion, it means that $ 1.1 trillion will be disbursed to government service providers who will are insulated from interest rates.

Likewise, in the 2023 budget, $2,2 trillion was allocated towards capital and recurrent expenditures while $2,2 trillion was allocated towards salaries.

Combined, it follows that the $4,4 trillion budget will drive up money supply in 2023.

With respect to export retentions, the RBZ doesn’t have reserves of Zimbabwe dollars nor a budget set aside for the liquidation of the 40 percent and 20 percent export and domestic export retentions, respectively.

This means that at every point when RBZ liquidates foreign currency, in line with the defined thresholds, it prints money.

This explains why broad money increased by $402 billion and $308 billion on -month-on-month in August and September 2022 topping broad money supply to $1,9 trillion in September 2022.

Based on this observation, although the 200 percent interest has restrained money supply, that is, caused by credit creation, its effectiveness is still watered/weakened by the resurgence of money supply from the budget and liquidation of export retentions.

Going forward, in view of the fact that the RBZ has announced that it will review the 200 percent interest rate and export retentions in March 2023, it follows that money supply will continue to increase mainly through the channels of higher export retentions and budget spending.

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Machiavelli 1 month ago

This Mugano is biased, how can he not see Gvt interventions not working? He is an agent of those who want to backtrack the gains of the revolutionary party.

Machiavelli 1 month ago

🐍 you are a 🐍 in the grass and we will chop your head on the anvil of pragmatic people centric economic approach

1 month ago

A really shallow analysis if what the economist said by Machiavelli I don't think he is the same Machiavelli whose comments we are used to reading I don't comprehend what he even means by '.... backtracking the gains made by this government' Zvimwe zvinhu ngatidzidze kunyararawo kana zvirikunze kweleague yedu

Nimrod 1 month ago

professor mugano is spot on. He uses the term " national fasting" so that dangerous economic rules are simplified for some of us. On this one he is not partisan at all and he is showing the facts as they are. Gvt is killing bank business by charging ludicrous interest rates. Hapana kunosvika zvima policy zvavo izvi. Just the other day vakadzosa ma Kombi after making people suffer for over 2 years. lt shows confusion in gvt planning

@Machiavelli 1 month ago

Dont just spew garbage you dont understand anything about economics stay in your lane

@@Machiavelli 1 month ago

what you are spewing is worse than garbage.You are actually the product of the rotting garbage that Machiavelli spewed in his parochial comment

Zuze 1 month ago

Pamberi ne Zanu Pf chete chete asvotwa ngarutse.

ndunge 1 month ago

cmred **** renyu handii


Ali Tinasheba albamohamed 1 month ago

Takapedzerwa kudhara

Biti 1 month ago

Ngavauye kwandiri for sound economic solutions.

g 1 month ago

yes, keep on doubting, and you will remain like that

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