MTP’s success hinges on funding – Prof

macro-economic environment, especially capital inadequacy, threatens its effective implementation.
Most observers point out that its targets are novel, but fear it may not be easily implemented due to a number of factors, but the most critical being financing.
University of Zimbabwe Professor of Economics Tony Hawkins has said the MTP is non-committal in a number of respects.
“It is non-committal on key issues. It does not say how the Government will tackle a foreign debt of over 100 percent of Gross Domestic Product, most of it arrears.
“It glosses over the conflict between its target of US$9,2 billion of investment over the five year (2011-2015) period to be achieved by a ‘comprehensive investment drive’ . . . ,” he said. Full financing of the five-year economic recover plan is estimated at US$9,2 billion, but the policy document does not strategise on the sourcing of the monies.
“Approximately US$9,2 billion total investment is required to finance the MTP in order to meet the growth and development targets during the plan period.
“It is important to note that most of the inflows are anticipated to come through our own savings and investment efforts, foreign direct investment (FDI), credit lines and public private partnerships,” reads an MTP brief.
The local environment is facing serious liquidity challenges that emerged out of the period of deflation following dollarisation in 2009, which has been worsened by the fact that Zimbabwe’s traditional sources of financing are presently constrained.
External indebtedness limits access to offshore funding, especially from multilateral agencies. At the end of 2010 the external debt was estimated at 103 percent of GDP of which the greater part – 78 percent of GDP – represented accumulated arrears of US$4,8 billion.
On the other hand, within the context of multi-currency (dollarised) economy, the Government’s hands are tied with respect to monetary policy.
Economists argue that under the multi-currency regime the central bank cannot monetise fiscal deficits, compelling the authorities to adopt cash budgeting. The Government is reliant almost entirely on tax revenues, aid inflows, foreign borrowing and any asset sales for revenues.
Monetary policy is largely inert because money supply is determined through the balance of payments, while interest rates are set by supply and demand.
These constraints place the burden of Government action on fiscal and structural policies.
Since dollarisation the Government has struggled to meet financing requirements. For instance, in the 2011 Budget, ministries’ bids totaled US$11,3 billion but budget spending, excluding US$500 million from expected aid grants, is only US$2,7 billion – a 76 percent shortfall.
To this extent, some observers have urged the Government to consider non-traditional strategies to raise the required funds.
Confederation of Zimbabwe Industries president Mr Joseph Kanyekanye said due to these financing impediments there is need for the Government to consider non-traditional (for Zimbabwe) capital-raising strategies such as mineral swaps.
“The easiest way to raise money is for the Parliament of Zimbabwe to enact a Zimbabwe Minerals Leveraging Act.
“This will result in a situation in which the Government can sell a whole mineral bloc and the cash is paid upfront. We know, for instance, that we have over US$350 billion worth of platinum reserves and we can leverage on these resources.
“It is very difficult for the country to secure funding from international institutions such as the IMF, World Bank, and the African Development Bank, especially in the context of ZIDERA.
“The Government should consider all these different alternative ways of raising capital, for example, mineral swaps, the issuing of sovereign bonds and the establishment of a Sovereign Wealth Fund among other means.
“In this way, as a country we will be able to raise enough capital to fund critical policies such as the Medium Term Plan,” he said. Nonetheless it is also important to question the indicated financing requirements for the five-year plan.
lThis is the ninth part in a series of articles on the key deliverables of the Medium Term Plan crafted to guide the Government programmes in the period 2011-2015.

 

 

 

 

 

A US$9,2 billion estimate seems rather conservative for a broad-based national economic plan, when regional financier – for instance – has estimated that the Zimbabwean economy requires an estimated US$14 billion for infrastructure refurbishment and development.
It is also interesting that the MTP itself estimates US$10 billion requirement for the minerals and public sectors, while budgeting less for whole MTP programme.
Although improved agricultural output and mineral export revenues in the past two years have brought significant economic stability, an infrastructure revamp remains critical if the targeted economic growth is to be registered.
The challenge of improving capacities through infrastructure development is however limited by the huge public project financing deficit, which in itself is difficult to offset in view of Government spending that is being constrained by an excessive wage bill.
This calls for the speedy implementation of the state enterprises and parastatals, among other budgetary control measures.