Economy still in doldrums

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FOLLOWING the advent of the inclusive government and multi-currency regime, with the attendant exchange rate stabilisation, the economy has slowly been recovering from a decade of meltdown and hyperinflation which almost reduced Zimbabwe to a wasteland.
The country has also made substantial progress in economic stabilisation due to policy reforms implemented by the post-coalition government and the taming of hyperinflation, supported by off-budget grants and occasionally a favourable external environment.
This enabled the restoration of macro-economic stability, creating fiscal discipline, restoring financial intermediation and fairly predictable and consistent policy frameworks.
However, it was the adoption of the multi-currency system, cash budgeting and discontinuation of the central bank’s seigniorage and concomitant quasi-fiscal activities which helped to restore macro-economic and price stability, fiscal discipline and jumpstart financial intermediation.
This cocktail of measures saw the economy rebound strongly, posting “growth rates” — which some analysts say are just “recovery rates” — well above most countries in the region, something Zimbabwe had not known for over a decade. Since last year, government has been trying to move beyond stabilisation to create sustainable growth underpinned by real growth.
But attempts to secure growth after stabilisation have been difficult as the rebound inevitably begins to diminish and reality sets in. More measures are now needed to address and strengthen macro-economic fundamentals, policies, reforms, structural weaknesses and other issues — like normalisation of international relations and dealings with creditors.
While Finance minister Tendai Biti’s optimistic projections during the presentation of his 2012 budget last November gave the impression Zimbabwe was now on an irreversible path to recovery, reality is beginning to show the economy is not really out of the doldrums.
That is why the minister revised downwards his growth targets for 2012 from 9,4% to 5,6%, which falls below his annual average target of 7,1%. Although technically the slowdown in GDP growth is a reflection of the underperformance of some key sectors such as agriculture and tourism, the real problem is broader than this.
Another indication that things are not looking up is the downwards revision of the US$4 billion budget to US$3,64 billion (although US$3,4 billion was also given). The budget shrinkage and further restriction of fiscal space shows the fundamentals are still not right. So this year is going to be difficult given poor yields of maize and wheat, partly due to erratic rainfall, but also as a result of policy failures.
The issue of an unstable policy framework is actually critical. Policy inconsistencies and uncertainties undermining investor confidence; lack of capital and the absence of alternative financing instruments; a high and unsustainable wage bill, crowding out social and infrastructure spending; and limited implementation and monitoring capacity are all combining to hamper sustainable recovery and growth. Add to this such problems as the indigenisation fiasco, the debt crisis, current account deficit — which has widened to 35,5% of GDP — and the real picture emerges. Zimbabwe’s debt is estimated at US$10,7 billion (111% of GDP) of which 59% of GDP are arrears, according to the latest IMF report exclusively obtained by the Zimbabwe Independent.
Government must refrain from contracting or guaranteeing non-concessional liabilities to prevent exacerbation of the debt crisis.
The downside risks are significant. The two main risks to the outlook are fears of political instability ahead of elections next year and the global economic downturn. Power struggles and dysfunctions in government, policy contradictions and crass economic ignorance on the part of some authorities are undermining recovery .
Of course, problems like mismanagement, corruption and incompetence are also damaging recovery. Some elements within our society are sabotaging the country via stealing, especially in Marange where diamonds are clearly being siphoned by corrupt ministers, state security raiders and mafia-style Chinese networks, as well as other criminals preying on an economy still in the woods.

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