adminOwn Correspondent
On October 1, 2018, Finance and Economic Development Minister Mthuli Ncube announced a raft of fiscal measures meant to reverse the disequilibrium that existed at that time between the aggregate United States dollars in the monetary system (the RTGS system) and actual United States dollars held through nostro accounts and as physical notes.
These measures included reducing the overdraft facility at RBZ to within statutory limits, introduction of an auction system for Treasury Bills, introduction of infrastructure bonds to harness local and diaspora savings, acceleration of “State-owned enterprise” reforms and a very awkwardly placed proposal to “create” a Regional Fuel Dry Port and second pipeline to the Mabvuku and Msasa storage facilities.
These fiscal measures were buttressed by revenue collection measures that included an upward review of the Intermediated Money Transfer Tax from 5 cents per transaction to 2 cents per dollar transacted, effective October 1, 2018, the termination of the term of the then Zimra board, with a new board to be announced in due course and a non-committal suggestion that international financial institutions and partners would be engaged to help the country in enhancing its capacity in enacting economic reforms as part of re-engagement efforts.
This was the genesis of the Government’s austerity measures, which at the time had been forecast to last a maximum of 2 years, aimed at restructuring the Government’s finances and reorienting the wider economy towards the President’s stated vision to become a middle income economy by 2030.
We roll forward to January 30, 2020 when the World Health Organisation declared Covid-19 a public health emergency of international concern.
This became the starting point of international efforts against the coronavirus pandemic and Zimbabwe would register its first confirmed case on March 20, 2020.
On March 27, 2020, the President declared a 21-day lock down to slow the spread of the pandemic and this was subsequently extended by a further 14 days on April 19, 2020.
As at April 29, 2020, the country has recorded 40 confirmed cases including 4 deaths and 5 recoveries from a total of 7 642 tests with testing being ramped up nationwide.
Our current economic context, with respect to forex shortages, cash shortages, high inflation, high interest rates, a highly informalised business sector, high unemployment, etc. are all well documented.
Focus should now be on fiscal measures needed to support the economy to withstand negative impacts of necessary measures needed to fight the Covid-19 pandemic. All this will be done while ensuring Government performs its basic mandate of protecting the citizenry — majority of whom have been required to cease economic activity for 35 days.
Zimbabwe has a highly informalised business sector and this presents the first and major challenge in accurately accounting for lost production and offering support to affected households.
This is a structural issue within the economy, which we believe should be addressed with urgency under the current raft of measures that Government will institute.
The Companies and Other Business Entities Act (Chapter 24:31), which became operational on February 13, 2020, should be used to enable registration of all businesses.
This registration should be done at no cost for a 3-6 month period to encourage registration across the country.
Additional resources should be made available to decentralise and capacitate officers to assist businesses and sole traders, some of who have no understanding of the Act’s requirements.
Going forward, such registration should become the basis on which banks lend, on which Zimra can issue tax clearance certificates and generally on which Government supported assistance can be accessed.
The second major issue is on how to support an economy that has fragmented economic and social protection systems.
In Zimbabwe, there is no central record keeping institution, with respect to social protection.
The National Social Security Authority (NSSA), keeps records on pension contributions and administers a national pension scheme, but their records are kept independent from those kept by Zimra who collect employment taxes, Zimdef who collect a human development levy, Standards Development Fund, who collect an innovation levy, Department of Social Welfare who provide direct Government assistance to the most vulnerable, as examples.
This situation has allowed for policy arbitrage that has had negative effects on the economy, with none of these institutions able to fully certify compliance of the businesses that operate in the country.
This disaggregation needs serious review and urgent attention as it has become a source of vulnerability in that each institution is inadequately resourced to develop its own independent measures to counter the impact of the Covid-19 pandemic and will inevitable require additional Treasury funding.
While the two issues above might require time, the Covid-19 effects which are already having serious consequences will continue unabated. Immediate measures need to be taken to cushion economic actors and enable a resumption of economic activity at a sufficiently high enough level to stop the country from falling into a period of stagnation, recession or depression.
To this end, our circumstances as a country are fairly unique when looked at from a wider global context.
The country has been isolated from global financial lending systems for some years now, so we are shielded from negative contagion effects impacting our financial systems.
We will, however, suffer impacts of a slowing global economy as we largely rely on other fragile economies for support as these countries focus on their own domestic situations.
Our reliance on imports will likely negatively impact on supplies of primary, secondary and finished products will suffer from supply chain disruptions. Our vulnerability in this respect requires serious introspection followed by the development of credible, actionable plans to develop and maintain efficient trade routes through inclusive stakeholder engagements.
The need to become self sufficient with respect to food production, import substitution and export reorientation of our industries has become glaring and these issues will require urgent and efficient co-ordination between all stakeholders to starve off catastrophe.
The above administrative issues highlight fiscal measures needed to not only support businesses, but provide social safety nets to avoid collapse of fragile household incomes and informal welfare structures. Since the Government is unable to reliably target households and individuals requiring assistance, it should instead consider measures that more efficiently reallocate resource back to the population, especially those who shoulder a greater share of the cost of this lockdown and the resultant medical and social costs.
There is a general belief that the disequilibrium that existed at time of increasing the Intermediated Money Transfer Tax has largely been dealt with, ironically through monetary policy and that very little benefit will accrue to Government in continuing with such a punitive tax on what are technically capital flows, that this money should be given back to the citizenry in the form of a downward revision to the original 5c per transaction or any such reasonable amount.
In economic terms, this will increase monetary values and allow citizens to efficiently allocate these resources between food, medical supplies, educational fees, utilities and other income generating activities at household level where the impact of the Covid-19 measures will continue to hit hardest.
This single move will release over $503 million back into the economy based on the December 2019 Treasury figures.
These funds in the hands of citizens will be allocated throughout the economy efficiently in support of those institutions and companies that will provide innovative services and products in these trying times.
This will reduce the overall burden on Government to make these allocations to these institutions and companies, as Government is far less efficient at allocating financial resources.
The purpose for which the Intermediated Money Transfer Tax was increased has been resolved albeit through other means and there is no better time, than in this time of crisis to release those funds back into the economy.
Additional fiscal measures should instead focus on restructuring the Government structures to eliminate duplications as already highlighted, enhancing the “Ease of Doing Business” matrices, reducing the cost of compliance within the economy and capacitating those government institutions that add value to the processes needed to ensure self-sufficiency in food production, import substitution and export reorientation of our economy.
The Covid-19 pandemic, coming as the country turned 40 years of independence, has provided us with the most opportune environment to effect far reaching, forward looking, reforms to the structure of our economy and society like never before. We should grab this opportunity and put in place policies that will ensure we have a robust foundation on which to rebuild our economy, taking all citizens from our current situation of dire household income vulnerability towards the stated vision of becoming a middle-income economy by 2030.
Bongani Ndlovu