Oliver Kazunga, Senior Business Reporter
THE country’s success in taming inflationary pressures has created a conducive fiscal and monetary environment essential to support the ambitious 7,8 percent economic growth target this year, Reserve Bank of Zimbabwe (RBZ) Governor, Dr John Mangudya has said.
In his Mid-Term Monetary Policy Statement issued on Thursday, Dr Mangudya, reiterated that Zimbabwe’s economy was on rebound despite the adverse impact of Covid-19, which continues to claim lives and has frustrated global economic value chains.
His views buttress recent Treasury revised Gross Domestic Product (GDP) growth projections to 7,8 percent from the initial 7,4 percent.
Latest official statistics have shown a significant decline in annual inflation from 837,5 percent in July 2020 to 106,6 percent in June 2021.
Last week Zimstat reported that the July year-on-year inflation had narrowed to 56,37 percent and 2,56 percent month-on-month.
The Government has attributed the positive gains to prudent policy interventions, coupled with smooth operation of the Foreign Exchange Auction System, resurgent commodity prices and the bumper harvest realised this year.
“The Government has ably shown steadfast commitment to sustaining the economic reform momentum. Despite the difficulties caused by the Covid-19 pandemic, the economy is on the rebound,” said Dr Mangudya.
“The bank is confident that the current stability of inflation and exchange rates, supported by a buoyant external sector performance, will continue in the outlook period.
“Accordingly, inflationary pressures in the economy have dissipated, thus, creating a conducive monetary and financial environment essential to supporting the envisaged growth of 7,8 percent in 2021 and a robust economic growth in the medium term.”
The close coordination between fiscal and monetary authorities, as shown by the sustained fiscal discipline and tight monetary conditions, have fostered macro-economic stability, added Dr Mangudya.
He also noted domestic economic growth would also be spurred by the anticipated recovery of the global economy in 2021 and the spill-over effects of the stimulus packages in the developed countries and Asia, together with the soon to be availed US$650 billion Special Drawing Rights (SDR) allocations into the world economy by the International Monetary Fund from which Zimbabwe is set to receive US$1 billion.
“The strong global economic recovery has resulted in a rally in international commodity prices, particularly of platinum, nickel and copper,” he said.
“Moreover, tobacco prices have been firmer at an average price of US$2,92 per kilogramme during the just-ended marketing season compared to the previous season where the average price was US$2,55/kg.”
Dr Mangudya said foreign currency receipts have remained buoyant with US$4,02 billion having been received in the first half of the year against US$3,12 billion received over the same period last year, representing a 29,1 percent improvement in foreign currency supply into the economy.
Of this amount, diaspora remittances received through the formal system amounted to US$649 million, a 73 percent increase from US$374,6 million received during the same period in 2020.
“These positive economic developments are key in sustaining the Foreign Exchange Auction System, which has had a significant impact on the national economy since its inception on the 23rd of June 2020,” said the Governor.
Consequently, capacity utilisation in the manufacturing sector increased from 36 percent in 2019 to 47 percent last year and is expected to further increase to above 61 percent by the end of this year. The apex bank has kept the bank policy rate at 40 percent and the medium-term policy rate at 30 percent during the first half of the year.
“These measures, along with the (Monetary Policy Committee) MPC’s forward guidance on interest rates, have helped create and sustain the current accommodative monetary and financial conditions,” said Dr Mangudya.
To buttress productive sector growth, the monetary authority introduced the medium-term bank accommodation facility in November 2019 largely focused on supporting agricultural production.
Support was extended for the Winter Wheat Planting Programme during the 2020 season and this helped in the realisation of a decent wheat crop of over 161 432 tonnes, enough to cover more than five months of Zimbabwe’s requirements.
“It is, therefore, imperative that such support programmes are implemented to substitute imports,” said Dr Mangudya.
“The outstanding amount under the medium-term bank accommodation facility stands around $4,13 billion.”
In May 2021, the MPC approved an additional $2,5 billion for winter wheat farming. In view of the Covid-19 induced strain on the micro, small and medium enterprises, the RBZ introduced $500 million facility to cater for the funding requirements of the sector. — @okazunga