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Too early to talk about growth, Mr. Minister

As it becomes increasingly clear that Zimbabwe’s economy is heading south and prospects of meeting growth targets set out in the Transitional Stabilization Programme appear dim, Finance minister Mthuli Ncube brew a shocker ahead of the 2020 National Budget that the fiscal policy document will focus on productivity, growth and job creation.

Wait a minute. How he would do that would be the most logical question that begs an answer. Let us take you aback. Barely a month after being appointed head of treasury, Ncube promised to wave the magic wand and turn around the economy. That was a strong statement which not only spoke about his predecessor but was also loaded with self-praise.

Now, barely a year after President Emmerson Mnangagwa appointed his first cabinet after the 2018 elections, Zimbabwe appears to be on auto-pilot. Key economic indicators such as inflation, unemployment and exports are not projecting a rosy picture. Gold output has been plummeting due to poor policies that fuel side marketing and tourist arrivals have also declined.

Zim Gold Output in Quarters

Data derived from Chamber of Mines

Zimbabwe has become a case study for economics students as well as international financial institutions. Essentially, it has become an experiment for Ncube who de-dollarized 10 years after dollarisation despite the absence of key fundamentals to support the introduction of a domestic currency. Studies by monetary experts such as Steven Hanke have shown this.

The Finance minister is probably seeing Zimbabwe’s growth through rose-coated lenses. He has rebased the economy in the past, blacked out the publication of inflation figures and has trumpeted his exploits in reducing the budget deficit. In fact he sees deficit closing the year at 4 percent of the budget size. Time will tell.

Early this year, Ncube bragged that Zimbabwe had registered a budget surplus and international creditors were pleased with this achievement. In reality though, what is a budget surplus when hospitals have no basic drugs such as painkillers and when the value of the domestic currency loses up to 80 percent within the first 60 days of its reintroduction.

Zimbabwe is suffering from a confidence deficiency and government is not doing much to address this. A week before the announcement of the budget, President Mnangagwa increased the number of government ministers when he appointed deputy ministers of Finance and Foreign Affairs. A new ministry was also formed.

For a government that asked its citizenry to tighten belts and endure austerity measures, this flies in the face of authorities who preached fiscal consolidation.

Secondly the false start to the new bank notes and coins is also dampening confidence in the financial services sector. Banks only started dispensing the units on Tuesday despite an earlier announcement that this would be done a day earlier. To make matters worse, the $2 bond coins were printed in 2018, raising questions on why government took this long to introduce them into the market.

Expectations

That the domestic economy is facing serious headwinds stemming from a devastating drought, rising inflation and erratic fuel and power supplies, is now an open secret.

For an economy with no budgetary support and a high rate of tax incompliance, the Budget should answer how the Finance minister will strike a balance between the needs of hungry servicemen and those of capital projects. In our view the Health and Education ministries should be well funded for Zimbabwe to achieve current and future development goals.

Zimbabwe wants to dream again and policies that support entrepreneurship should be in place among other measures.

Ncube’s ambitious plan to create jobs in an environment where there is rising inflation and low business activity due to factors such as lack of capitalization, could be a fait accompli.

zim inflation Oct 2019

In our view, we contend that the Finance minister should shift focus from agriculture to mining particularly gold, coal and chrome. Legacy issues around agriculture make it difficult for the sector to attract significant funding to mechanize in line with modern trends.

Normalising relations with IFIs and establishing partnerships with states that play a greater role in advancing Zimbabwe’s economic interests should also be top on the agenda. As it stands, it’s still a long way to go before Zimbabwe can start talking of job creation. Let’s go back to the basics first. It’s the politics that need to be addressed first before the economy can tick.

Data derived from: Chamber of Mines Zimbabwe

 

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