Desist from quasi-fiscal activities: WB
ZIMBABWE must discontinue policies such as the funding of quasi-fiscal activities from the central bank coffers as this may retard the country’s economic growth, a new World Bank report has warned.
Support for agriculture through subsidies has always been a contentious issue since the government embarked on a chaotic land reform programme to reverse colonial legacies.
The country recorded a sharp plunge in agricultural output after it embarked on the fast-track land redistribution exercise which saw over 4 000 white former commercial farmers losing vast tracts of land to locals. In effort to revitalise agriculture, the government has since the aught conducted several quasi-fiscal activities such as the farm mechanisation programme and subsidies on agricultural inputs.
The International Monetary Fund last week cut Zimbabwe’s gross domestic product growth forecast for 2022 to 3% from an initial estimate of 3.4%.
The World Bank, on the other hand, sees Zimbabwe’s economy registering modest 3.6% growth, in contrast to the government’s forecast of stronger growth driven by mining and agriculture.
According to the World Bank Country Economic Memorandum, a policy document proffering advice to the government, while Zimbabwe has undertaken public financial management (PFM) reforms, including programme-based budgeting (PBB), PFM systems, budget and debt transparency, more needs to be done to stimulate the economy.
On the political front the government has also taken steps toward devolution, and improved the business environment (for example, by repealing the Indigenisation and Empowerment Act), signing the global land compensation deal, simplifying business start-up and property registration, strengthening access to credit, and making resolving insolvency easier.
But critics say this may be a smokescreen to hoodwink the international community.
“At the same time, those policies that have been detrimental to economic growth need to be discontinued. Economic development has been hampered by macroeconomic instability (particularly price instability), low investment, and limited structural transformation,” the World Bank says.
“Expansionary fiscal and monetary policies, coupled with multiple exchange rates, have resulted in considerable price volatility. The management of public finances was complicated by a high public wage bill, many unprofitable stateowned enterprises (SOEs), and guarantees to the agricultural sector. Similarly, monetary policy included frequent monetary financing of the budget and quasi-fiscal activities (QFAs).
“Meanwhile, a significant public debt burden financed by domestic issuance, coupled with a high-cost regulatory environment, has limited private investment and economic activity. Finally, the economy’s dependence on key products and subsectors, and strong government support for lower value-added agriculture over higher value-added services and manufacturing, has reduced the potential for higher rates of economic growth. External/climatic shocks have contributed to low growth, hence investing in resilience/adaptation measures is critical to mitigate associated risks.”
The focus of this Country Economic Memorandum, according to the World Bank, is to identify options for structural reforms to help Zimbabwe accelerate economic growth and to achieve Upper Middle-Income country status.
“This is the first CEM for Zimbabwe since 1985 and it comes at a critical juncture along Zimbabwe’s development path. The objective of the report is to support and inform policymakers and stakeholders on policies to accelerate economic growth, boost productivity, and create high-quality jobs.
In this regard, the CEM first establishes macroeconomic stability as a necessary condition for high and sustained growth, the World Bank says.
“It then uses productivity as an overall framing to identify key structural bottlenecks, before providing deep-dives on informality and trade as priority areas to address in order to unleash productivity growth. Importantly, the report also aims to present data about Zimbabwe’s economic performance in a systematic fashion, focusing on the previous two decades and comparing Zimbabwe with its peers in the region, as well as aspirational peers globally.”