Exclusive interview with Zimbabwe’s Finance Minister

Finance minister Mthuli Ncube reveals why the country had to scrap the dollar.


Zimbabwe’s economic performance continues to be disappointing, but finance minister Mthuli Ncube insists that if the country can stay the course, his economic reforms will bring about the changes its citizens are longing for. Interview by David Thomas.

For many hard-pressed Zimbabweans, it’s difficult to recall a time when the economy was out of the doldrums. Under the erratic and isolationist rule of former president Robert Mugabe, the country witnessed currency collapse, widespread poverty and mass unemployment, eventually culminating in his 2017 removal in a palace coup.   

Yet despite his replacement by a Zanu-PF government ostensibly committed to economic reform under President Emmerson Mnangagwa, the last few months have defied citizens’ hopes of a rapid improvement in living standards.

Inflation has been persistently high, climbing above 75% in April, and a newly introduced quasi-currency, the RTGS dollar, has failed to gain market confidence. Importers struggle to source basic goods, while the withdrawal of fuel subsidies has enraged a struggling population.

Natural disasters including El Niño droughts and Cyclone Idai have compounded Zimbabwe’s woes at the worst possible time by exacerbating agricultural hardship. The IMF predicts the economy will contract by 5.4% this year – a figure the government contests.

The unenviable task of turning this situation around has fallen to finance minister Mthuli Ncube, an academic, development banker and self-described technocrat whose stringent policy prescriptions are prompting hope and consternation in equal measure.

The cerebral Ncube, a visiting professor at the University of Oxford, is offering his country a course in fiscal consolidation – reduced government expenditure including an end to costly subsidies, reform and partial privatisation of failing state companies, and support for the controversial RTGS dollar. Speaking to African Business, Ncube says that despite hardship, Zimbabwe must stay the course and complete his challenging reforms. 

“I think that really the solutions lie in the success of the economic reform agenda. The inflation issue for example is caused by specifically monetary issues. On the fiscal front we’re now running a surplus for the last four months, so the fiscus is not contributing to growth in money supply and therefore inflation…

“The budget deficit in 2017/18 was double-digit, almost 11% of GDP, so you can already see that the level of domestic spending by government was the source of the imbalances you see – all the reforms have done is lift the lid off the boiling pot. The current reforms have not created the problem.”

Fuel prices

At the heart of the fiscal reform agenda, designed to cut the budget deficit to 4% of GDP from 7% last year, is a politically risky bid to roll back costly fuel subsidies.

In January, the government more than doubled the price of fuel, leading to the worst riots since the 1990s and the deaths of at least a dozen protestors in a fierce government crackdown.

In late May, the government again boosted fuel prices by 46%, cushioning the blow by introducing $8m per month of subsidised public transport and reducing fuel duties. Ncube admits that there are risks to further price hikes.

“Clearly any major hike in fuel prices is bound to cause major socio-economic challenges for us and we’re watching to make sure it doesn’t get out of control,” says Ncube.

“But again we’ve no choice as government, because previously fuel was subsidised through an exchange rate of one to one with the US dollar.

“We felt that this was unsustainable in the long term and was creating arbitrage opportunities between the fuel market and the parallel market… when we did analysis we felt that if we removed this one-to-one subsidy and let fuel companies source their currency from the market like everyone else [it] would remove a major distortion, but again this has an impact on fuel prices.”

This apparent willingness to make politically difficult choices has won the backing of the IMF. In May, the fund approved a staff-monitored programme designed to support the reform agenda and “assist the authorities in building a track record of implementation of a coherent set of economic and social policies that can facilitate a return to macroeconomic stability and assist in re-engagement with the international community.”

While the programme will not include the much sought-after financial assistance the country requires, it represents a significant improvement in Zimbabwe’s often-strained relations with the fund and offers hope for a further rapprochement with multilateral lenders.

Supporting the currency

As a condition of the deal, Zimbabwe’s central bank has agreed to cease printing money, which the IMF said is critical to supporting the RTGS dollar, launched in February amid US dollar scarcity.

The central bank has not printed money since December, according to data seen by the Financial Times. It has also taken a more realistic view of the value of the currency by abandoning a peg tying the RTGS dollar to the US dollar at parity.

Nevertheless, widespread business scepticism, a lack of investor inflows and uncertainty over who can access the currency have combined to undermine its value. Ncube says that the government is attempting to boost liquidity in the interbank market in a bid to support the beleaguered currency.

“We are basically trying to support the interbank market to make sure there’s US dollars supplied into the market which will then deal with the excess demand that you see.

“Recently we structured a $500m facility with Afreximbank to bolster the supply of US dollars to back up our balance of payments requirements.

“We are negotiating with some banks globally for some trade finance facilities to support the private sector in terms of importation and sourcing of raw materials in the region and globally. So our job as government has been to support facilities for the private sector so as to reduce pressure on the parallel market or indeed the official market.”

Yet Zimbabwe’s political opposition have been scathing of Ncube’s handling of the economy. Tendai Biti, former minister of finance from 2008 to 2013 and deputy national chairman of the opposition MDC Alliance, dismissed the government as “cruel and clueless” in a series of incendiary tweets.

“One can’t boast of a RTGS dollar surplus based on cash accounting in a first quarter marked by deep poverty and disequilibrium. In any event one does not destroy real value and wake screaming of a surplus in valueless money. It’s voodoo economics… on the economic front it is imperative that the regime must simply re-dollarise to stem the meltdown.

“Anything else is a waste of time. Export surrender requirements must fall. Production must commence. Savings must be ring-fenced and we must join the RMU [Rand Monetary Union].”

Ncube is unmoved by calls for a full return to the US dollar, arguing that sanctions restricted transactions in US dollars and the dollar eroded Zimbabwean competitiveness:

“It’s not clear to me that US dollars are the solution in the long run for dealing with Zimbabwe’s challenges. Zimbabwe just needs to normalise relations with the rest of the world so capital can flow in, and there’s enough formal balance of payments to support a progressive currency…

“Zimbabwe needs to have full monetary policy; adopting the US dollar means monetary policy is thrown out of the window. We’re trying to make progress to make Zimbabwe normal again. Of course this has costs.” 

Partners remain sceptical

Yet the extent to which the government is truly prepared to normalise relations with the international community remains in doubt. Contested 2018 elections and the deadly crackdown on fuel protestors in January severely undermined Zimbabwe’s efforts to re-engage with would-be partners, including a previously warm United Kingdom.

Sceptics doubt that Mnangagwa, a decades-long Zanu-PF insider, is truly committed to overseeing legislative reforms to improve the country’s toxic political culture. The president’s newly created image as an economic reformer has been damaged by outbursts against “unpatriotic” businesses, some of whom he accused of holding “rent-seeking profiteering tendencies”.

For his part, Ncube says that the government enjoys a good rapport with the private sector, but argues that some businesses share in the blame. He argues that exporters and banks have not been releasing dollars quickly enough, and hints at currency speculation.    

“As things stand now there isn’t enough domestic currency growth to warrant even the movement you see in the parallel market. It’s a very thin market being driven by a few individuals. Everyone uses social media, you only need one person to say what the rate is, spread it around and then it becomes the rate for the day, literally.”

Ncube instead counsels business patience, and argues that most reforms will be completed by the end of the year, with consolidation targeted in 2020.

“All I can say [to the business community] is yes we’re going through a tough time, there’s a need for patience, it’s a temporary situation, we’ll see it through. Our prognosis is that inflation will drop by year-end… We have a different figure [to the IMF 5.4% growth projection] – ours is more of a flat rate of growth. We think actually we might even be surprised by the economy on the upside.”

Rising above the fray

But if the recovery doesn’t materialise, it remains to be seen whether the mild-mannered technocrat – who until now says he has spurned politics and is “soldiering on” – will be able to rise above the fray.

“There’s no issue of personal failure – it’s collective responsibility, it’s a reform agenda the government is pursuing.

“I lead it and I’m not the only actor. It’s a package, it’s economic issues, political issues, institutional issues, there are different facets to it. I tend to be the lead champion, but I’m not the only actor. It’s a collective responsibility, it cannot be personal failure in this regard.

“I do not think we will even be seen to have failed in the first place, it’s a temporary adjustment phase and we’ll come out of it.” 

David Thomas

Want to continue reading? Subscribe today.

You've read all your free articles for this month! Subscribe now to enjoy full access to our content.

Digital Monthly

£8.00 / month

Receive full unlimited access to our articles, opinions, podcasts and more.

Digital Yearly

£70.00 / year

Our best value offer - save £26 and gain access to all of our digital content for an entire year!