THE MACROECONOMIC COSTS AND GAINS OF QUASI-FISCAL ACTIVITIES BY THE RESERVE BANK OF ZIMBABWE

Abstract

Central Banks across the world sometimes take up unconventional policy actions by embarking on Quasi-Fiscal Activities (QFAs) for social, economic or political obligations of government. These activities are fiscal in nature and are carried out on behalf of government by different institutions including Central Banks. This paper assesses the scope and coverage of QFAs by the Reserve Bank of Zimbabwe (RBZ) between 2004 and 2008. Seven respondents were purposefully selected in this qualitative ex post impact assessment study. The selection criterion of one RBZ official, two economists, two financial sector officials, and two from the academia was on the basis of their unique status, experience, and knowledge of the Reserve Bank and its policy actions. Policy documents, project reports, and transcribed interviews informed the findings of this research. Polarised views were drawn between the RBZ sources and other respondents. The RBZ was of the view that the economicchallenges due to sanctions on Zimbabwe were minimised by its extraordinary interventions. The other respondents acknowledged the short-term benefits but, maintained that the interventions exacerbated the county’s macroeconomic misfortunes. Negative economic growth, high unemployment, and hyperinflation pointed to the negative impact of QFAs. This report contends that although isolated positive trends were traced in the RBZ QFAs, their macroeconomic costs outweigh their gains. Central Banks are recommended to focus on their monetary policy mandate and avoid QFAs because fiscal policy objectives often dominate the interventions. The continued existence of QFAs of Central Banks calls for further research into the politics of QFAs.