|
Getting your Trinity Audio player ready…
|
The Minister of Finance Professor Mthuli Ncube in his presentation at Parliament’s Pre-Budget Seminar underway in Victoria Falls reaffirmed that the country anticipates an economic growth rate of 7.8% and a budget deficit of 0.5% of gross domestic product (GDP) but renowned economist Professor Gift Mugano said this is only achievable if the government addresses key economic fundamentals.
“The presentation by the Minister of Finance reaffirmed that the country anticipates an economic growth rate of 7.8% and a budget deficit of 0.5% of GDP. My view is that these targets are achievable considering the fact that we are coming from a lower base. The question which arises here is at what cost are we achieving the 7.8% growth rate and 0.5% budget deficit?
“This is achieved at the cost of addressing key fundamentals and realities on the ground. At present, a whopping 49% of the population is in extreme poverty as of 2020 as noted by ZIMSTAT and World Bank, that is, up from 29% in 2018…. We bought these poverty levels as a result of austerity and of course droughts witnessed in 2019/20. There is a serious wage compression and worsening poverty levels amongst civil servants as the majority of them are under the poverty datum line.
“The challenges are coupled with poor service delivery ranging from a shortage of identity documents (IDs), passports, a dearth in education, and poor health service delivery as related line ministries witnessed massive delays in the disbursements of funds. There is also a weak aggregate demand as the majority of workers have low disposable income,” Prof Mugano said.
The presentation by the Minister of Finance showed that a number of Ministries, Departments, and Agencies witnessed low disbursements of funds. By 30 September 2021, budget disbursements to these departments/ministries were as follows:
- Parliament of Zimbabwe (33%);
- Provincial Councils and Local Authorities (32%);
- Environment, Tourism and Hospitality Industry (38%);
- Foreign Affairs and International Trade (31%);
- Industry and Commerce (32%);
- Health and Child Care (46%);
- National Housing and Social Amenities (17%);
- Information Communication Technology and Courier Services (28%).
Ironically, as of 30 September 2021, the Ministry of Lands, Agriculture, Fisheries, Water and Rural Development, Ministry of Finance and Economic Development, and Ministry of Energy and Power Development witnessed budgets bursts as follows:
- Finance and Economic Development (138%);
- Lands, Agriculture, Fisheries, Water and Rural Development (169%)
- Energy and Power Development (131%);
Prof Mugano said this is not a good show from a governance perspective.
“The Ministry of Finance and Economic Development must spend in line with budget provisions and Parliament must have teeth to enforce this. In addition, the fact that some line ministries are starved of resources undermines service delivery and productivity.”
Commenting on the exchange rate disparities, Prof. Mugano said although the auction system at its inception managed to foster economic stability, in recent months it has faced several threats and risks mainly coming on the back of exchange rate disparities, that is, approximately ZWL$93/US$1 versus ZWL$180/US$1.
Prof Mugano identified the following as drivers of the black market rate spiral:
- Massive price hikes in commodities like COTTON, WHEAT, and MAIZE caused a serious threat on money supply resurgence – which has prompted RBZ to institute measures aimed at cleaning out bad money;
- Ongoing construction projects
- The self-fulfilling prophecy – exchange depreciation causes further depreciation as market watchers throng the black market to preserve their currency;
- Foreign exchange backlog, and;
- RBZ’s responses inter alia include the US$50 weekly disbursement to individuals, management of money supply and clearing of the forex backlog, and cracking of black market dealers.
“My humble view is that these measures are not sufficient to deal with the black market rates since the root causes are centred around the supply of forex (structural issues), corruption in the forex markets and the command economy. If these factors are not addressed, the auction system is holding on to a thin threat and its collapse is imminent and we will enter into dollarization (100%)!”
He proposed an array of solutions to address these behavioural challenges. Prof Mugano said presentations by the Minister of Finance and Economic Development and the Reserve Bank of Zimbabwe Governor, Dr John Mangudya shows that there is a confidence deficit that is militating against the economy notwithstanding sound macroeconomic fundamentals.
“In order to restore confidence, it is my humble view that the following measures must be taken into account urgently:
- Developing spirit of effective and inclusive consultations with key stakeholders in the ecosystem of policymaking (private sector, civil society, development partners, academic, etc);
- Repeal SI 127 and set aside the ”arrests mantra” and consider the social contract as an alternative vehicle while the effects of bad policies are being addressed;
- Clear the foreign currency backlog and here we encourage the Minister of Finance and up the support to the auction system from the current US$15 million per week to the levels that meet the gaps which arise from the market;
- Government must take leadership in supporting the local currency by charging all its services in USD as well as applying all the taxes in ZWL;
- The Ministry of Finance and RBZ, in particular, should consider stopping issuing statements and Statutory instruments for the next 6 months as previous statements and SIs were negatively affecting the economy;
- If these measures are implemented, together with a pro-poor budget in 2022 powered by easing of austerity and rationalization of taxes will bring the economy back on an inclusive growth trajectory and reinforcement of economic stability,” Prof Mugano added.
In his contribution during the pre-budget seminar in Victoria Falls yesterday, Honourable Temba Mliswa, the Member of the House of Assembly for Norton drew delegates to the issue of special drawing rights (SDRs) that were created in or about 1969 by the International Monetary Fund (IMF).
“The SDRs are a special reserve asset. They can be traded by countries for cash or liquidity. So the country’s foreign currency reserve gets a credit. It boosts its balance sheet strengths. This then gives the country room to go and borrow money. SDR are not cash. So any money borrowed has to be repaid.
“Zimbabwe is under sanctions, is not on IMF or World Bank program and is in default of its loan obligations. So Zimbabwe will find it difficult to use those SDRs. Zimbabwe has to find a friendly country willing to lend money to it. That’s the big challenge,” Honourable Mliswa said.