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Finance minister Mthuli Ncube

Analysis

Government’s claims of economic stability; huge exercise in smoke and mirrors

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FINANCE minister Mthuli Ncube last week made bullish economic predictions, saying Zimbabwe, in the doldrums for decades now, has weathered the storm and will bottom out this year with solid growth at a time most regional and global economies have taken a serious knock due to the Covid-19 pandemic.

Bernard Mpofu

Ncube also said he has introduced a series of economic reforms under government’s Transitional Stabilisation Programme – which is now giving way to its successor plan the National Development Strategy – and that economic fundamentals have also stabilised, although inflation remains unsustainably high at 659.4%.

The minister cited fiscal consolidation, which includes strengthened administrative measures, sealing revenue leakages, enhanced revenue collections through taxes, customs duty and the controversial 2% charges on electronic transactions. In addition, he said there is no more resort to central bank overdraft, issuance of Treasury Bills for quasi-fiscal activities except for budget, public wage bill below 50% from 92% in 2017.

Rationalisation of posts, freeze on hiring, save for critical posts or sectors and new procurement procedures. He also trumpeted fiscal balance, saying fiscal deficits have now been turned into surpluses since January 2019. Cumulative surplus was ZW$$395.5 million by December 2019 and ZW$800 million for the period January to June 2020. These surpluses, he said, serve as a buffer for shocks such as the impact of Cyclone Idai, drought and Covid-19.

Ncube said his surpluses are also supporting social services delivery, social protection and infrastructure development.

While the minister’s list of achievements may well be true, a closer scrutiny of the Transitional Stabilisation Programme which runs till year end shows government has failed to meet key benchmarks such as double digit growth, parastatal reforms, job creation and defending the value of the Zimbabwe dollar.

Currency reform, which led to the bringing back of the Zimbabwean dollar – now trading at US$1: ZW$90 on the local informal market –  has been a big failure. While government intended to de-dollarise in a bid to failure to meet its obligations, especially civil servants salaries, the economy is now re-dollarising instead. Government had admitted as much by allowing individuals and businesses to transact through a de facto dual currency system.

Under the TSP, government projected that the economy would grow 27% over the three years to December 2020, but its growth was negligible and now with the impact of coronavirus the damage could far worse as industrialists say, although the minister has sought to downplay that.  Inflation was targeted to average 5%, but surged from 10.6% in 2018, to 255% last year and 659.4% for September.

Key targets that were missed by huge margins also include targets for exports, imports, government revenue and spending and investment.

Economic analysts said time is not yet right for the Cambridge University-trained economics professor, who also taught finance at Oxford University and London School of Economics, to make such big calls on a turnaround based on technical details and wishful thinking alone when the reality on the ground still shows the economy is in a parlous state.

University of Zimbabwe professor of economics and analyst Tony Hawkins, in an article we carry on this platform, said Ncube’s claims were unfounded.

“To describe an economy with 659.4% annual inflation, 98% currency devaluation, double-digit GDP decline, three-quarters of the population living at or below the poverty line, more than half the population food insecure and falling employment, both formal and informal, as stable is palpable nonsense,” Hawkins said.

“Minister Ncube, better known for his acumen as a (financial) mathematician and expert on algorithms, than his economics or banking skills, cannot expect anyone to take his stabilisation claim seriously. Yes, we have seen the exchange rate stabilising over the past couple of months and inflation cooling off, but the real measure of economic performance is GDP Growth.  Productivity is subdued and foreign direct investment is at an all-time low.In his paean of self-praise about his TSP, Ncube carefully ignores the fact that all of his programme’s targets have been missed.”

Stephen Chan, United Kingdom-based world politics academic and former international civil servant with the Commonwealth, said Zimbabwe requires structural reforms first to before a sustainable economic programme could be implemented.

He said policy should be formulated to boost the informal sector, saying fast-growing economies like Malaysia had successfully developed by applying such a model.

“Ncube is trying to apply formal economic remedies to an informal and irrational situation. Trying to apply classic economic theory to something which is irrational doesn’t work. Basically you have to take for instance the informal sector and build that up rather than splash it down. That’s where your economic generation comes from,” Chan said in an interview.

“It’s not coming from the countryside, it’s not coming from the mines or other sectors which are being the subject of corruption. You have over 80% or more unemployment in Zimbabwe and who do all these people get their money from apart from the diaspora sending remittances home? That part of the economy that is at least generating something needs to have an uplift and that means a tax-free holiday on cellphones or other transactions or something rather than slapping a tax on them.

“Zimbabwe wants to be modern, but it degenerated to the point where if we are realistic we cannot regard it as modern and you can’t assume or start from a modern base.”

Batanai Matsika, Head of Research at Morgan & Co Securities, said it is premature for Ncube to raise the champagne glass for a toast.

“Still early days to conclude if the economy is ticking or not, Matsika said.

The World Bank, in its latest outlook report, contradicted Ncube’s bullish sentiments.

“Volatility in the global environment due to COVID-19 pandemic, which is taking a heavy toll on human life and placing excessive pressure on health systems, continues to negatively impact Sub-Saharan Africa,” the World Bank said.

“Economic and social impacts are immense, costing the region between $37 and $79 billion in estimated output losses in 2020, reducing agricultural productivity, weakening supply chains, increasing trade tensions, limiting job prospects, and exacerbating political and regulatory uncertainty.”

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