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Economy on slippery slope

FINANCE minister Patrick Chinamasa’s fiscal policy review last week and Reserve Bank governor John Mangudya’s monetary policy statement on Wednesday confirmed what is already widely known: Zimbabwe’s economic growth has stalled and thus no prospects of recovery any time soon.

Although Chinamasa and Mangudya are well-meaning and doing their best, they are hamstrung — their efficiency or effectiveness is severely restricted — by President Robert Mugabe’s self-serving survival politics. Chinamasa, for instance, has been working to strengthen the public finance management system, domestic arrears, manage external borrowing and deepen the re-engagement process with external creditors, among other things, but his initiatives are being sabotaged by Mugabe’s toxic leadership and hidebound politics.

The same applies to the central bank chief. Mangudya has, for example, restored the interbank facility to improve circulation of liquidity within the banking sector while curtailing bank failures. He has also been trying to contain non-performing loans to prevent them dragging down the economy, introduced bond coins to enhance price competitiveness through small denominations, ensured demonitisation of the now defunct Zimdollar to promote consumer and business confidence through the multiple currency system, came up with a Credit Reference Bureau to cleanse banks of bad debts through improving information asymmetry and credit risk, tried to get rid of weak banks to limit systemic risk and extended absolute amnesty for exporters to identify non-recoverable exports of US$108 million with a view to allowing then to start on a clean slate.

However, similarly his efforts are also being undermined by unprogressive politics. Chinamasa’s revised economic growth projection to 1,5% from the initial 3,2% shows that the economy has stalled, with no immediate prospects for recovery.

The economy, and thus the country, has been on a slippery slope since the controversial 2013 elections. When Chinamasa came in 2013, he projected a 6,1% growth rate which was never met. Growth has been decelerated from 10,6% in 2011 to 4,4% in 2012, 3,2% in 2013 and less than 3% last year. The minister says it will be 1,5% this year, reflecting stalling growth, partly due to liquidity problems, falling production, low aggregate demand, high debt overhang and collapsing infrastructure, among other issues. An unprecedented wave of company closures and job losses confirm the economy is on a nosedive.

The World Bank says Zimbabwe’s economy will grow by 1%, but analysts argue this is even optimistic. Invictus Capital, for instance, is pessimistic and has predicted the economy could slip deeper into recession later this year. “We do not expect the economy to recover in the near term. The recently announced mid-term fiscal policy Review statement confirmed our fears that the economy has stalled,” Invictus says in its latest report assessing the economy. “We believe that even this forecast is ambitious and expect growth to be negative this year (at -1%).” This shows the economy is on a slippery slope towards something bad or disastrous.

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