Economic headache awaits new govt

INDICATIONS from the parliamentary poll results are that the Movement for Democratic Change (MDC) is likely to form the next government but immediate challenges face them on their first day in office.


Although the presidential election results have not been officially released, predictions are that there could be a run-off which analysts say President Robert Mugabe is likely to lose.
Analysts this week said a huge challenge awaits the new government on the economic front. The stiffest challenge faced by a new government is the economy, which has shrunk by over 60% within a decade.
Thousands of companies have either shut down or relocated to neighbouring countries as the economic environment became more untenable and as they realised the Mugabe government could not uphold its promises.
 They will inherit corrupted government structures and institutions, a situation that might be difficult to undo.
They MDC will come in to a government which is virtually broke and indebted heavily, with a foreign debt of US$4 billion and a domestic debt of $1,6 quadrillion. Every Zimbabwe is personally indebted to the tune of $133,3 million.
The country’s central bank is technically insolvent and has incurred huge losses in the region of US$2,5 billion through quasi-fiscal operations. In addition to this, more money is owed in United States dollar terms to exporters, NGOs and individual foreign currency holders.
The revenue authority has been prejudiced of almost 60% of potential earnings which has been generated by the informal sector which is not a recognised source of funds.
The MDC claims to have a comprehensive plan to deal with these problems but analysts say it will have to do more to undo the damage that the Zanu-PF government has caused.
In their political manifesto the opposition has said it will restructure government companies and institutions.
Analysts however said this will not be easy especially with the system that the Zanu-PF government has created over the past 27 years.
The MDC says it has a rescue package of US$10 billion to stabilise the economy.
Economic commentator, John Robertson, said the first challenge will be to halt the slide in the economy.
Inflation is now 165 000% and still rising.
He said money alone will not be enough to resuscitate Zimbabwe’s economy.
“For the international community to give us international support we have to prove that we are worthy of that support,” Robertson said.
“We have to demonstrate that we can use the money responsibly. We have to behave in a better way than we have in the past 27 years.”
“Even with that money we might not be able to achieve much if they don’t change the whole system. We need stability and to address the issue of scarcities like foreign currency and food,” said Robertson.
Perhaps the biggest challenge for the MDC will be to convince the foreign investors that Zimbabwe is a safe destination for their capital.
To do this the new government will have to deal with all the new laws and institutions that government put in place.
“We have to scrap the Indeginisation Act because it’s not necessary,” said Robertson. “There is no single clause in that act that is worthy of support. It is wrong. We need to do away with it so that investors can trust Zimbabwe again as a capital destination”.
There are also the huge problems of price controls and institutions like the National Incomes and Pricing Commission (NIPC).
Economic commentator Tony Hawkins said there was need for the new government to restore the credibility and discipline in the central bank and in the financial sector as a whole.
The central bank has been accused of excessive printing of money and participating in the parallel market to buy foreign currency to fund government operations. 
In the run-up to the elections the central bank went on a spending spree buying tractors and other equipment to help Zanu-PF’s campaign. 
“In as much as we need a quicker response from the international community we need the skills to revive corrupted and undermined institutions. By year-end we could see things beginning to change,” Hawkins said.  
“We will need a new government because it’s going to take some time for the hyperinflation to come down. It’s going to be difficult to prioritise what to tackle first,” he said. 
“In the short term it’s important for the new government to effect crisis management and get some foreign currency. But Money alone is not going to help.”

THE NUMBERS THAT AWAIT NEW GOVERNMENT

 Economy that has shrunk by 60% in 10 years
Inflation of 165 000%
Industry capacity utilisation at 10%
Gold production less than 25%
Unemployment rate 82%
Domestic debt of $1,6 quadrillion
Punitive accommodation rate of 4 500%
Foreign exchange rate distortions
Negative interest rates
Budget deficit at 60%
Money supply of 51 768,8%
Technically insolvent reserve bank
US$2,5 billion in quasi-fiscal losses
A personal tax of 60% on the top end
70% of money out of official circulation
GDP crash of 60%
A land bank with bad loans
Errant central bank overstepping mandate
US$2 billion needed for optimum industry output
Collapsed road, rail and aviation infrastructure
A foreign debt of US$4 billion.
About US$1,6 billion to increase power generation
Massive brain drain with 3,5 million Zimbabweans in the Diaspora
Bloated civil service wage bill
Broke parastatals and national authorities
Price distortions caused by controls
Depleted tax revenue base: 60% of revenue undeclared.

By Jeslyn Dendere