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Extraordinary measure for extraordinary: A case of Zimbabwe's austerity measures

12 Jun 2019 at 14:34hrs | Views
In the Bible when Jacob was faced with a situation he was supposed to meet Esau his brother he was so afraid knowing that he had subtly stolen the latter's blessing. During the night, Jacob wrestled an angel and failed to prevail. Jacob fought with his might until he got the much coveted blessing knowing that his survival at the hands of Esau was anchored on this.

The Jewish state of Israel in 1967 was under siege from its Arab neighbours who were threatening to wipe it from the face of the earth. Out of desperation, Israel made the first pre-emptive move by attacking almost all the entire Egyptian war planes. After that Israel managed to regain its territorial integrity in a war that lasted a record six days.  Under normal circumstances nobody thought Israel would stand a chance against the combined armies of Arab nations.

Back home a well know preacher Pastor Godwin Chitsinde of the Spoken Word Ministry (End Time Message) always says that "desperate moments call for desperate measures". He always encourages his congregation to go the extra mile in seeking permanent solutions to their challenges.

The above situations typify what Zimbabwe is going through and what could be the country's way out of these situations. The country has been in isolation for almost two decades and has suffered under the strains of the sanctions imposed by the United States, Britain and European Union. Internally the country's currency the Zimbabwean dollar lost value and had to be replaced by a basket of multi-currencies while supplementary budgets caused Government's expenditure to balloon gobbling a large chunk of the revenue amid stagnant infrastructure development.

In 2018 the new dispensation under the leadership of President Emmerson Mnangagwa appointed renowned economist Professor   Mthuli Ncube as the Minister of Finance and Economic Development. Prof Ncube did not waste time in coming up with an economic blueprint called Transitional Stabilisation Programme (STP) which runs from October 2018 to December 2020. The STP lays the foundation upon which the Zimbabwean economy is sinking its roots for recovery.

The programme is meant to bring the country back on the economic growth path. This entails bringing financial discipline in terms of expenditure and releasing funds for infrastructural development.

It was noted that in most cases Government expenditure exceeded budgets thereby necessitating supplementary budgets. Prof Ncube in his austerity measures proposal urged Government Ministries to spend within their allocated budgets with no anticipation of getting extra funds from Government. In this regard Government borrowing would be trimmed thus reducing the domestic debt. Doing away with budget deficit entails responsible financial management.

Cutting Government expenditure was seen as another avenue through which funds could be saved. Under the old dispensation Government expenditure was getting out of hand and the purchasing of motor vehicles was taking top priority over service delivery. Prof Ncube has since changed that. To this end savings to the tune of RTGS$500 million have been realised by Government so far.

As part of the ongoing monetary and currency reforms, Prof Ncube announced the introduction of a new currency in the near future. President Mnangagwa reiterated this call on 7 June 2019. Laying the road map ahead of the coming in of the new currency, President Mnangagwa said "A currency is only printed by its owners and the only way to get it is through exports, diaspora remittances or foreign investments, but as a country we should have our own currency and we have started that journey".

Prof Ncube also took a bold step in seeing to it that Treasury Bills are auctioned to the highest bidder using market forces than to offer them to selected financial institutions. Starting in January 2019, Prof Ncube discontinued the issuance of Treasury Bills in settling Government obligations. The Treasury Bills will only be issued to raise money for financing deficits and cash flow timing gaps from the budget with the approval of Parliament.

"Government will move away from the private placement to the auction based system of issuing Treasury bills and bonds in order to improve transparency, better price discovery, enhance confidence and allow market-determined interest rates, thereby building up the yield curve," noted Prof Ncube in the 2019 national budget.

The country needs foreign currency to import fuel, electricity and medical drugs among other necessities. In this regard, Prof Ncube focused on promoting the competitiveness of exporters. This will be achieved by making sure that domestically produced goods are competitive both in the region and international markets. Zimbabwe used to export beef and horticultural products to the European Union (EU) market and it is this market that the Minister is targeting to tapping its potential. On the other hand Zimbabwe's tobacco is proving to be a favourite of the Asian market especially China and the crop rakes in a sizeable chunk of Zimbabwe's foreign currency earnings.

On the agricultural front, the STP was structured to improve the farmer's access to markets as well as making the 99-year lease bankable. With the country importing cereals in a bad season like the current one, development of irrigation infrastructure would go a long way in improving yields per hectare and saving of the much needed foreign currency.

Issues of institutional reforms had been topical for too long and Prof Ncube did not spare them either. His thrust is to effect budget expenditure control, reform of the Public Service, empowerment of provinces, ease of doing business, curbing rent-seeking and corrupt behaviours. The country needs to work on improving its ease of doing business rankings and corruption which stands at 155 out of 190 and 160 out of 175 countries, respectively. The STP measures come in handy in correcting the anomalies.
State Operated Enterprises (SOEs) have been draining the fiscus for too long and were not bringing any meaningful dividends. As a result Prof Ncube in his 2019 national budget statement proposed the privatisation of loss making SOEs. This entails partial privatisation through joint ventures (25), full privatisation (8) and liquidation (5) of some of the SOEs.

Given that infrastructure is a key economic driver, the STP is also supported by the Government's 2019 Infrastructure Investment Plan where some US$2.5 billion has been earmarked during the 2019 financial year. Sound and solid infrastructure underpins economic growth as it gives residents and investors access to all parts of the country as well as reliable means of transport, energy sources and internet connectivity.

As things stand now, the expansion of the Robert Gabriel Mugabe International Airport is taking shape and this will see more flights landing in the country, thereby improving commerce and tourist arrivals. Various roads are being attended to across the country making them passable. According to the Zimbabwe National Roads Administration (ZINARA), its priority roads are Harare-Beitbridge, Harare-Bindura- Mukumbura, Ngundu-Tanganda, Ngundu-Chiredzi, Beitbridge- Bulawayo, Bulawayo-Nkayi, Kwekwe–Sanyati, and Guruve-Kanyemba, among others.

To show that Prof Ncube's STP policy is the right thing for Zimbabwe, Economist and businessman, Eddie Cross pointed out the achievements of the STP so far as the liberalisation of the exchange rate (inter-bank rate), the elimination of fiscal deficit and the fact that nostro accounts now hold US$1 billion as compared to the previous figure of US$200 million. The minister has firmly resisted the pressure from the hard-pressed consumers to introduce price controls as these would be viewed as Government interfering with business and would bring back the empty shop shelf scenario which many would not want to even remember.

The International Monetary Fund (IMF) Staff Monitored Programme (SMP) country report number 19/144 on Zimbabwe positively commented on the good work Prof Ncube is doing and the results that have been achieved so far. Major highlights of the report are the stabilisation of the deep macro-economic imbalances; fiscal consolidation while protecting spending for the vulnerable and critical infrastructure, steps to support financial sector stability are a priority and currency reforms have reduced deep economic distortions of the previous system.

In conclusion, as Zimbabweans should rally behind Prof Ncube and the STP as it is the panacea to rebuilding the country's economy. It is painful yes given the ever-spiralling basic commodity prices but is a necessity which the country has to go through in order to enjoy better life in the medium to long term.

Source - Elijah Chihota
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