daniel chigunwe
While the Second Republic’s economic reforms have been driven by the need for Zimbabwe to have a permanent stable and expanding economy, with standards of living growing inexorably year after year, the general support for the policies by institutions like the World Bank and the International Monetary Fund are useful indicators.
It is important that the reforms are driven by Zimbabwean needs and engineered by Zimbabweans, so that Zimbabweans take ownership of what is required. Any economic policy will have detractors, and we have seen this with the present tight monetary policy brining up opponents who see liquidity being kept tight.
The fact that many of those who complain about tighter liquidity also complained about the inflation and currency upheavals when liquidity was looser just shows that it is impossible to please everyone. So the Government and Reserve Bank of Zimbabwe need to be looking at the long term benefits for Zimbabwe, that is continuing economic growth every year and a reasonably stable economic environment, meaning very little currency instability and low rates of inflation.
Tight fiscal policies came into effect with the election of President Mnangagwa for his first full term in 2018. His new technocratic Minister of Finance, Economic Development and Investment Promotion Prof Mthuli Ncube started as he meant to continue. The policy was ensuring that all Government expenditure was properly budgeted in advance and that very largely the Government would only spend what was raised from taxes, with borrowing kept low and basically only for that fraction of capital expenditure that saw an immediate and guaranteed stream of income that would service the debt.
At the same time tight monetary policies were put in place at the Reserve Bank of Zimbabwe, with the “printing” that is the deliberate creation of money now stopped.
While these two policies did stop State spending driving inflation, it became fairly obvious that there were a lot of other pressures driving inflation, many not normally part of standard economic theories, and it took several years to hunt down each particular tap, creating new money and close it down.
Speculation driven by cheap bank loans was one major tap, as were concerns in the private sector willing to build and use the black market, consumer-led credit schemes, and even the way the Reserve Bank was buying the then 25 percent of foreign currency that the exporters had to sell promptly.
Eventually each tap was closed and new ones do not seem to have been created. At the same time the Government and Reserve Bank started the process of building up gold and foreign exchange reserves, perhaps an old fashioned policy but one that works rather well, to cover all the local currency in existence, with a healthy margin of safety, and eventually to make sure that these reserves also, that means in addition, can cover six months of imports.
Despite the wish to move more swiftly towards a single currency in all local business dealings, the authorities have noted that at present there are not enough ZiGs in existence to do this, and they have no intention to create new ones out of thin air to do this. The normalisation of the economy will be driven by strictly applied economics.
In its latest report the World Bank has recognised the major gains of such a policy, by hoping that the Government and Reserve Bank will maintain what they are now doing so well. The IMF has already noted that growth will be high in Zimbabwe this year.
Having the approval of the World Bank and IMF will be helpful for Zimbabwe as it continues its normalisation path, even if it was not the central reason for making the reforms that are now working.
For a start, it is a bit like a private company having a good audit report. Others feel far happier doing business with it, even though all the auditors are saying is that the company is as good as it says it is and auditors do not run the company. When the major multinational global financial institutions say you are doing what should be done, others take note.
At the same time this sort of positive commentary should help Zimbabwe in its present arrears clearance programme that is proceeding forward in a clear and deliberate fashion.
The final result of this is to be able to reschedule a good chunk of the inherited debt, with an approved payment plan.
With everything then cleaned up new money becomes potentially available, although Zimbabwe will be exceptionally careful about what it borrows for and how it borrows. Fairly obviously we need to make sure that any loans, even the very low interest development loans, can be serviced properly and repaid promptly.
So it is possible to borrow for power stations, for example, since Zesa can sell almost anything that is generated, and for dams, so long as towns and farmers pay economic prices for raw water, and even to accelerate road building along tolled highways, since the toll fees will pay off loans.
But other capital spending, especially health and educational spending, will still have to come from taxes as high fees cannot be set to pay back loans.
We would also note that a reasonable World Bank report also helps drive investment. People willing to sink their money in Zimbabwe will like to hear that we are doing things properly, helping to reduce non-business risks and so investors just have to work out if their investment will make the desired profits in a normal economic environment.
Online Reporter