Zero Pindula

WhatsApp Message

*Mugano Doubts Govt Interventions To Stabilise Economy*

*Follow Pindula on WhatsApp for daily new updates*
https://whatsapp.com/channel/0029Va84dngJP21B2nWeyM3v?tv

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:

----------
itel A70 256GB
$99USD

WhatsApp: https://wa.me/+263715068543
Calls: 0772464000
----------

> 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.

_If you found this article useful_
*Please support Pindula by forwarding to friends and groups*