Benefits of poverty reduction strategies through economic growth

The government has recently indicated in its draft interim poverty reduction strategy paper (I-PRSP) that it is targeting an economic growth rate of 6.6% from 2016-2018. The strategy also targets inflation of 0.6%, an interest rate regime that promotes and boosts investment, a current account deficit of less than 10% of the country's Gross Domestic Product (GDP).

Our problem in Zimbabwe hasn't been policy formulation but the implementation part of it. Over the years, the Ministry of Finance and Economic Development has formulated a lot of sound policies that have the potential of lifting the economy of Zimbabwe from shambles and poverty but the major binding constraint has been the failure of other ministries, stakeholders, politicians, institutions and individuals to uphold and work positively in promoting the ultimate goal. Let's burry our political difference and be optimistic and courageous in working together as a nation in promoting these poverty alleviation strategies.

Blaming sanctions and other countries will never help the economy of Zimbabwe. It's high time that we become focused and try to assimilate and execute strategies that boost production as it is the only way that can remove our country from poverty.

It should be noted that the extent to which growth reduces poverty depends on the degree to which the poor participate in the growth process and share in its proceeds. The policies crafted so far are focused on combining growth promoting policies with policies that allow the poor to participate fully in the opportunities unleashed and so contribute to that growth. This includes policies to make labour markets work better, remove gender inequalities and increase financial inclusion. The major aim is trying to make everyone fit and participate in alleviating poverty in Zimbabwe.

In promoting inclusive growth, the government should also invest more resources in education and in health as these factors affect the poor's ability to participate and take part in growth opportunities. Health care and education consumption affect the quantity and quality of labour supply in the market and increasing consumption of these will help to boost economic growth.

Economic growth will help in expanding employment opportunities in Zimbabwe were currently unemployment rate are above 89%. As companies expand their production scales, more people will be hired to produce goods and services as labour is an important factor of production. More people will receive incomes and be able to purchase goods and services that improve their economic and social welfare.

Expanding the economy allows the country to get more goods and services for its own consumption. Poverty in Zimbabwe is due to the fact that the country is failing to produce much of its requirements and is surviving on imports which are taking away much of the country's income. The country should be focused on boosting production, starting with the primary sector, especially agriculture. The secondary sector will then do value addition on the output produced by the primary sector and then export the surplus to get more foreign currency. Slumping commodity prices has been a major binding constraint to the developing nations and as long as the country fails to process its raw materials and export finished or semi-finished products, less will be realised from exporting primary commodities.  

Income from exports acts as an injection in the economy. Income represents the purchasing power of individuals to buy goods and services produced hence if the more income is injected in the economy through exports, people will demand more in terms of goods and services. Zimbabwe has a lot of idle resources, hence an increase in demand will force firms to employ more the economic resources to produce more and meet the increased demand. National income will increase through the multiplier effect. However it should also be understood that imports represents a leakage of income and will cause the economy to regress. Export incentive schemes by the Reserve Bank of Zimbabwe can be seen as a good measure to boost exports and Statutory Instrument 64, 2016 as a best way to discourage imports so as to limit income leakage from the economy.

An expanding economy will allow the government to collect more in terms of tax revenue through expansion of the tax base. More companies will contribute more in terms of corporate tax, high employment rates will allow more revenue contribution from income tax and when the economy is expanding, people will spend more, hence the government will collect more from indirect taxes. An expanding tax base will mean less individual income sacrifice to the tax revenues but a contracting one due to high unemployment rates will plunge the workforce in poverty as it has to sacrifice more in terms of tax.

More tax revenue collection would mean an improvement in terms of service delivery by public utilities. It will enable the government to have more income to spend on construction of roads, dams, schools, hospitals, communication networks, electricity, water etc. These factors are also seen as growth enhancing as they improve the ease of doing business and attract more private and foreign investment.

Economic growth will allow the economy to have more savings and can increase the supply of loanable funds in the market and raise the level and rate of investment. Currently people in Zimbabwe are failing to save for retirement age, for investment or for any other unknown future occurrences like death and natural disasters. The major binding constraint is low income levels. Low savings would mean low investment and low future consumption and poverty. Promoting economic growth is the only way to boost the level of savings, investment and future consumption hence a generation of a virtuous cycle of development.

Economic growth will also allow people to have more income to consume quality education and medication. This improves the quality of labour supply and allows people to secure future higher paying jobs which will further improve their social welfare through reduction of poverty. Improvement in the quality of labour supply also allows people to contribute meaningfully to the level of total production. In general, a growing economy tends to provide greater job opportunities. This lead in turn to increased demand for education as people expect higher returns for them and their children from the investment of time and money in acquiring skills.

Growth also enables the country to align itself well with the globalised world that offers new opportunities for economic development. A growing economy will be able to acquire new technology and science that offers better prospects across both productive and service sectors.

Economic growth will also enable economic agents to acquire assets. Owning an asset that can be used as collateral can expand access to financial markets. Such access is likely to be growth-enhancing by allowing more households an opportunity to invest which is important in economies where the average firm size is small.   

Blessing Machiva is an Economist and he writes in his own personal capacity. Comments and criticisms can be forwarded to the following email address machiva.blessing@gmail.com or WhatsApp number +263 773 836 435.