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Mthuli Ncube walks a tightrope

10 Jul 2020 at 07:12hrs | Views
FINANCE minister Mthuli Ncube is expected to present a mid-term fiscal review statement next week. The country is on edge, as the steepest economic decline in living memory wreaks havoc. Even the hyperinflation years of 2006-2008 did not see such rapid decline. The implosion, accelerated by the Covid-19 lockdown, has been catastrophic.
Stagflation is a reality. This is characterised by a triple whammy of escalating inflation and a collapsing exchange rate; declining employment, real wages and consumer spending; and a massive fall in gross domestic product. As University of Zimbabwe economics expert Professor Tony Hawkins rightly pointed out last week, Ncube's economic strategy is now in tatters.

The Treasury chief was banking on the idea that if he somehow managed to control money supply, this would reduce inflation and bring some stability to the exchange rate. However, a volatile cocktail of economic mismanagement, corruption, climate change, humanitarian crisis and the Covid-19 lockdown has evapo-
rated all hope of swift recovery.

The government has appealed for urgent assistance from the International Monetary Fund and the Paris Club of major creditors, without success. The reply on both occasions has been simple: stop wasting time and start implementing the economic and political reforms you promised. This is where we are. The economy has gone belly-up and there is no external bailout. What then?

In the absence of genuine and far-reaching reform, Zimbabwe will not get an economic rescue package from the United States, the European Union and international financial institutions. If the economic decline continues unabated and there is no reason at this stage to believe any other outcome we must budget for heightened civil unrest and political turmoil. The repercussions are self-evident. We are already witnessing labour unrest, with health professionals entering their third week on strike. The Zimbabwe Congress of Trade Unions has indicated that a general strike is inevitable. The gap between the average wage and the poverty datum line has widened alarmingly.

Zimbabwe's economic problems are largely self-inflicted. The government is endlessly tinkering with currency policy, to the chagrin of investors. We have also seen public officials tampering with the operations of private enterprises through arbitrary actions that spook investors. The suspension of the Zimbabwe Stock Exchange has dealt a blow to the country's credentials as an investment destination.

Companies are facing serious challenges and bankruptcy. They will try to survive through price gauging, but this will not help much, since purchasing power has been eroded significantly. What has worsened the corporate sector's predicament is that the government's ZW$18 billion so-called Covid-19 rescue package is not making a difference.

Bankruptcy will destroy not only private companies but also the country as a whole. The threat of financial ruin is dangling perilously above everyone's head like the proverbial sword of Damocles.

The Finance minister has his work cut out. There are no shortcuts. He must make the best of the revised budget, which is supposed to be the government's most important policy instrument. The crisis demands decision action and genuine reform.

Source - the independent
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