Opinion / Columnist
Was abandoning of structural adjustment export wise?
01 Jul 2018 at 08:14hrs | Views
THE political economy of misunderstood patriotism and sovereignty led the old political dispensation and former Government to abandon the structural adjustment export-driven economic model that was muted in 1990 and effectively implemented in March 1991.
The motivation for the need for reforms by then was to address the negative impacts of a highly regulated economy that the Government had adopted from the colonial regime. These regulations, which were imposed since the UDI years, were not compatible with the running of the open economy of the 1980s.
The main objective was to stimulate investment activity and remove the then existing constraints on growth while purposefully moving away from the redistributive policies of the first decade of independence. Large-scale public sector investment was to be replaced by incentives to investment in the country's lagging productive capacity by doing away with many economic regulations, allowing market forces to operate in directing the pace and course of economic activities.
Intended changes to the financial system were particularly targeted, aimed at making it more flexible.
As the economy started to expand the negative effects of the regulations on production became more glaring. As early as 1989 large deficits had occurred in the balance of payments in addition to the huge budget deficits. Hence, there was a need to initiate the structural adjustment export-driven economic model and abrogate the protectionist policies which were retarding the performance of the economy.
The set targets for the structural adjustment export-driven economic reforms were to reduce the budget deficit from the 1991 level of 11 per cent to five per cent by 1995. Real growth in exports was expected to be at an average annual growth rate of 5,4 percent.
The reforms in the agricultural sector were expected to lead to a growth rate of 3,2 percent, and the creation of employment.
The investment ratio was to increase from its pre-economic structural adjustment programme level of 18 percent to 25 percent, with the money supply increasing at a rate of not more than 20 percent per annum.
In order to reduce the burden on the fiscus, State enterprises were to be reformed in preparation to their commercialisation and ultimately privatisation to ensure their self-sustainability. The civil service was to be reformed through rationalisation aimed at reducing redundancy while enhancing its efficiency, with the wage bill, as a percentage of the GDP expected to be brought down to not more than about 12,9 percent of the GDP from its pre-economic structural adjustment programme level of about 16,5 percent while cost recovery were to be instituted in the health and education sectors.
Real Government expenditures in these areas were planned to be kept constant to protect the poor and vulnerable groups of the society. The reforms in the financial sector were expected to lead to the liberalisation of interest rates, and increase competition by eliminating the oligopolistic structure of the country's banking sector.
Notwithstanding the missed targets in the area of agriculture for example mainly as a result of the 1991-1992 drought, very little achievement in the area of civil service reform, the GDP and inflation targets were also missed and the budget deficit actually increased. The major achievement of the economic structural adjustment programme was the creation of the conducive structural macro-economic environment which made it possible for the basis of building future programmes on the foundations laid by the economic structural adjustment programme.
However, the sustainability of the economic structural adjustment programme's efforts hinged and depended among other things on the political will of the Government not only to sustain but also to deepen the reforms. This was never to be unfortunately. There is evidence in the new Zimbabwe of the political will to forge ahead with reforms. One imagines the effort put by the new political dispensation so far, if at least the same effort and commitment was put for the success of the economic structural adjustment programme, I strongly believe the economic meltdown of 2008 could have been averted.
Countries like China were also undergoing economic reforms, and they never looked back. The level of political will and commitment remained high. Today China is a success story and evidence of the impact of economic reforms, an evidence that economic reforms do work.
I am not in any way suggesting that, had Zimbabwe not abandoned the economic structural adjustment programme it would have been the second to China by now. There is, however, a possibility that the current economic challenges that the country is in would have been avoided. The argument is when the Government decided to abandon the structural reforms, it took the country back into the pre-economic structural adjustment era and political economy.
That is, it went back to implement the inward-oriented development strategies that were adopted in 1980 and jeopardising the post-independence industrial policy that was planned for the expansion of the manufacturing sector. That marked the more than a decade of economic development lost, while the other countries in the region were making economic development progress.
The unpalatable and failure of inward-oriented development strategies and the abandonment of the economic structural adjustment programme, left Government in an economic policy vacuum with higher debt problems and heavier loan conditionalities and especially unable to curb inflation and address problems of growing poverty, and unemployment.
The Government strategy was to continue operating in isolation from foreign influence, and this isolation was presented by the Government as a national strategy undertaken independently of the Bretton Woods agencies. To uphold the notion that it was pursuing a well-thought-out national strategy, and dispel the sense of crisis, a new Governor of the Reserve Bank was appointed to address the two principal problems of inflation and currency stabilisation.
He introduced a foreign currency auction system aimed at reducing the hold of the parallel currency system. He also launched a crackdown on some of the smaller private banks, which were the product of the liberalisation of the financial sector during the aborted economic structural adjustment programme, which had been suffering the effects of cash shortages, high inflation, a weak local currency and under-capitalisation, all of which were threatening the collapse of several indigenous banks.
In the meantime the economy continued deteriorating further leading to the spectacular hyperinflation of the 2008.
In conclusion, the argument is that economic reforms have never been easy. They have been painful in China and other countries where they have been successful. Abandoning the economic structural adjustment programme was never a prudent decision at all, in my view. The programme is at least credited for laying the foundation for any form of reforms that the country may decide to embark on in the future.
Dr Bongani Ngwenya is based at the University of KwaZulu-Natal as a post-doctoral Research Fellow and can be contacted on nbongani@gmail.com
The motivation for the need for reforms by then was to address the negative impacts of a highly regulated economy that the Government had adopted from the colonial regime. These regulations, which were imposed since the UDI years, were not compatible with the running of the open economy of the 1980s.
The main objective was to stimulate investment activity and remove the then existing constraints on growth while purposefully moving away from the redistributive policies of the first decade of independence. Large-scale public sector investment was to be replaced by incentives to investment in the country's lagging productive capacity by doing away with many economic regulations, allowing market forces to operate in directing the pace and course of economic activities.
Intended changes to the financial system were particularly targeted, aimed at making it more flexible.
As the economy started to expand the negative effects of the regulations on production became more glaring. As early as 1989 large deficits had occurred in the balance of payments in addition to the huge budget deficits. Hence, there was a need to initiate the structural adjustment export-driven economic model and abrogate the protectionist policies which were retarding the performance of the economy.
The set targets for the structural adjustment export-driven economic reforms were to reduce the budget deficit from the 1991 level of 11 per cent to five per cent by 1995. Real growth in exports was expected to be at an average annual growth rate of 5,4 percent.
The reforms in the agricultural sector were expected to lead to a growth rate of 3,2 percent, and the creation of employment.
The investment ratio was to increase from its pre-economic structural adjustment programme level of 18 percent to 25 percent, with the money supply increasing at a rate of not more than 20 percent per annum.
In order to reduce the burden on the fiscus, State enterprises were to be reformed in preparation to their commercialisation and ultimately privatisation to ensure their self-sustainability. The civil service was to be reformed through rationalisation aimed at reducing redundancy while enhancing its efficiency, with the wage bill, as a percentage of the GDP expected to be brought down to not more than about 12,9 percent of the GDP from its pre-economic structural adjustment programme level of about 16,5 percent while cost recovery were to be instituted in the health and education sectors.
Real Government expenditures in these areas were planned to be kept constant to protect the poor and vulnerable groups of the society. The reforms in the financial sector were expected to lead to the liberalisation of interest rates, and increase competition by eliminating the oligopolistic structure of the country's banking sector.
Notwithstanding the missed targets in the area of agriculture for example mainly as a result of the 1991-1992 drought, very little achievement in the area of civil service reform, the GDP and inflation targets were also missed and the budget deficit actually increased. The major achievement of the economic structural adjustment programme was the creation of the conducive structural macro-economic environment which made it possible for the basis of building future programmes on the foundations laid by the economic structural adjustment programme.
However, the sustainability of the economic structural adjustment programme's efforts hinged and depended among other things on the political will of the Government not only to sustain but also to deepen the reforms. This was never to be unfortunately. There is evidence in the new Zimbabwe of the political will to forge ahead with reforms. One imagines the effort put by the new political dispensation so far, if at least the same effort and commitment was put for the success of the economic structural adjustment programme, I strongly believe the economic meltdown of 2008 could have been averted.
Countries like China were also undergoing economic reforms, and they never looked back. The level of political will and commitment remained high. Today China is a success story and evidence of the impact of economic reforms, an evidence that economic reforms do work.
I am not in any way suggesting that, had Zimbabwe not abandoned the economic structural adjustment programme it would have been the second to China by now. There is, however, a possibility that the current economic challenges that the country is in would have been avoided. The argument is when the Government decided to abandon the structural reforms, it took the country back into the pre-economic structural adjustment era and political economy.
That is, it went back to implement the inward-oriented development strategies that were adopted in 1980 and jeopardising the post-independence industrial policy that was planned for the expansion of the manufacturing sector. That marked the more than a decade of economic development lost, while the other countries in the region were making economic development progress.
The unpalatable and failure of inward-oriented development strategies and the abandonment of the economic structural adjustment programme, left Government in an economic policy vacuum with higher debt problems and heavier loan conditionalities and especially unable to curb inflation and address problems of growing poverty, and unemployment.
The Government strategy was to continue operating in isolation from foreign influence, and this isolation was presented by the Government as a national strategy undertaken independently of the Bretton Woods agencies. To uphold the notion that it was pursuing a well-thought-out national strategy, and dispel the sense of crisis, a new Governor of the Reserve Bank was appointed to address the two principal problems of inflation and currency stabilisation.
He introduced a foreign currency auction system aimed at reducing the hold of the parallel currency system. He also launched a crackdown on some of the smaller private banks, which were the product of the liberalisation of the financial sector during the aborted economic structural adjustment programme, which had been suffering the effects of cash shortages, high inflation, a weak local currency and under-capitalisation, all of which were threatening the collapse of several indigenous banks.
In the meantime the economy continued deteriorating further leading to the spectacular hyperinflation of the 2008.
In conclusion, the argument is that economic reforms have never been easy. They have been painful in China and other countries where they have been successful. Abandoning the economic structural adjustment programme was never a prudent decision at all, in my view. The programme is at least credited for laying the foundation for any form of reforms that the country may decide to embark on in the future.
Dr Bongani Ngwenya is based at the University of KwaZulu-Natal as a post-doctoral Research Fellow and can be contacted on nbongani@gmail.com
Source - zimpapers
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