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Prosper Ndlovu/Oliver Kazunga, Business Reporters

GOVERNMENT has been called upon to restrain money supply growth and restore financial confidence in the economy so as to keep inflation under check amid growing concerns over erosion of incomes and corporate balance sheets.

Despite recent minimal upward wage reviews, the country’s working class has suffered severe loss of value for earnings on the back of price escalation, which has deepened since June this year when the country abandoned the US-dollar dominated multi-currency system — adopted since 2009, to revert back to the Zimbabwe dollar.

According to the Zimbabwe National Statistics Agency (ZimStat), Zimbabwe’s poverty datum line jumped 13 percent to $1 827 in August, as the cost of living continues to rise. A majority of workers still earn far below the $1 827. The poverty datum line measures the basic needs for an average family of five. This has increased pressure on the need to restore financial stability and ensure that wages match with the cost of living while at the same time reining in inflation. 

“There are headwinds risks emanating from the need to address the erosion of wages to match with the cost of living while at the same time reining inflation — this is a complex game,” renowned economist, Dr Gift Mugano, said. The country’s annual inflation spiraled from 56 percent in January 2019 to 175,7 by June.

“There are also headwinds risks coming on the back of subsidies in transport, telecoms, energy (fuel and electricity) and water sanitation sectors, which will undermine viability of the sectors as well as reliable supply of the same,” he said.

Addressing delegates at the Employers’’ Confederation of Zimbabwe (Emcoz) annual congress in Bulawayo last week, economist Mr Brains Muchemwa, said in view of prevailing economic challenges, Treasury must exercise caution regarding money supply to preserve value for the local currency.

“The most important intervention mechanism for Government is to restrain money supply growth in order to protect labour earnings and corporate balance sheets.

“An environment that is characterised by wild movements in exchange rates and consumer prices is not progressive and does not promote productivity and investment,” he said.

According to the Reserve Bank of Zimbabwe, broad money supply recorded a year on year growth of 57,51 percent, from $8,3 million in May 2018 to $13 million in May 2019. The apex bank has said the growth partly reflects expansion in foreign currency account (FCA) deposits, caused by the movement of the exchange rate, which hit 1:15 last week. 

“The re-denomination of the foreign currency positions into local currency resulted in inflated balances, hence the increase in money supply,” said RBZ Governor Dr John Mangudya in his recent 2019 monetary policy review.

He, however, explained that money supply growth was being tightly monitored through Government instituted complementary measures from the fiscal side. 

“On this note, the RBZ lending to Government has not increased, reflecting fiscal consolidation measures being pursued by Government since the second half of 2018,” he said.

Earlier in his presentation, Mr Muchemwa alluded to Treasury propositions under the 2019 national budget, which seeks to achieve fiscal consolidation on the back of disequilibrium experienced in past years, which saw the country accruing a bloated debt, both domestic and foreign. As such, he said, austerity measures were the right path and these should result in reduced inflation as opposed to runaway inflation that is being experienced now. 

While admitting that the early part of 2019 was marked with positive market sentiment, which drove spending and volume growth, Innscor Africa chairman, Mr Addington Chinake, said the trend has changed with business and labour now under strain due to raging inflation.

“This, combined with declining disposable incomes and reduced formal employment, placed consumers under tremendous pressure,” said Mr Chinake in a statement accompanying the group’s financial results for the full year ended 30 June 2019.

According to Dr Mugano, persistent inflationary pressures are coming largely from three fronts, that is, exchange rate induced, import and cost push (from wages, fuel and other key cost drivers). “Inflation spiral will continue . . . unless if and only if Government secures substantial supply of foreign exchange as well as radically substitute unnecessary imports,” added Dr Mugano.

The local currency has steadily lost value against the US dollar, hovering around 1:15 as at Friday, heightened by speculative behaviour on the foreign currency exchange market. Coupled with general lack of liquidity and forex supply gaps on the formal market, the economy has suffered from exchange rate distortions, evidenced by piling pressure on prices as businesses cite weakening confidence. 

These, economic experts say, have induced a strain on the entire business environment with a crippling effect on consumer purchasing power. Zimbabwe Congress of Trade Union (ZCTU) secretary general, Mr Japhet Moyo, recently appealed to Government to influence the drafting of regulations that determine formulae for salary reviews in line with inflation adjustments.