This past week, we have been trying to make sense of the Monetary Policy Statement (MPS) and the Transitional Stabilisation Programme (TSP). I could have easily mistaken the TSP for the International Monetary Fund’s (IMF) Three-Year Extended Fund Facility (EFF) arrangement for Egypt from 2017-2019, based on the stark similarities in policy measures.
Cherish Ratisai ,Economist
The EFF is an economic reform programme that has been funded by the IMF in Egypt. The programme was approved by the IMF in November 2016, with the intention to provide around US$12 billion over three years.
Since the Arab Spring back in 2011, Egypt has had a series of economic challenges including low growth with high unemployment, foreign exchange shortages and large budget deficits that led to rising public debt.
To address these challenges, the EFF policy measures set out from the onset where the introduction of Value Added Tax (VAT), the optimisation of the public-sector wage bill and a reduction of energy subsidies. Part of the fiscal savings would be used to strengthen the social safety nets and reduce public debt by almost 10% of Gross Domestic Product by the end of the programme.
The programme has also stressed the need to ease business licensing, promote public financial management, including state-owned enterprises, ensure subsidy and labour market reforms and increase jobs and labour market participation among women and young people.
Fuel subsidies were removed, paving way for higher prices. All these measures were implemented to show that the Egyptian government was willing to make some tough decisions to turn around the economy.
On October 1, the highly-educated Finance minister Mthuli Ncube revealed fiscal measures that echoed the Egyptian EFF. The most notable being the 2% tax on now selected electronic transactions. The stark similarities in the policy measures between the two countries point to what the Zimbabwean government is prioritising.
These measures are a signal to the World Bank and the IMF showing commitment that the country is willing to make to gain support from International Financial Institutions (IFIs) on its debt clearance agenda. By using policies that have been approved by the IMF, they are increasing their chances of fruitful reengagement talks in Indonesia at the annual IMF and World Bank Group meeting.
What to expect
Since we have an understanding of the government’s alignment in terms of ideology, the EFF can show us the kind of measures that we can expect going forward. The pillars of the EFF include; the liberalisation of the foreign exchange system. This is aimed at eliminating foreign currency shortages and encouraging exports and investments.
Other policy measures include a monetary policy aimed at containing inflation, strong fiscal consolidation to ensure public debt sustainability, strengthening social safety nets by increasing spending on food subsidies and cash transfers, far-reaching structural reforms to promote higher and inclusive growth and increasing employment opportunities for the youth and women.
Lastly, there is need for fresh external financing to close the financing gaps. The financing is why the government has set its gaze on implementing policies that would be favourable to the IMF.
From the monetary policy statements and fiscal measures to the TSP, it seems that these policies are mainly stemming from what seems to be acceptable to the IFIs.
Although there is nothing wrong with learning from and emulating others, the concern is that there seems to be a deep lack of authenticity and economic soul searching to truly solve the country’s problems.
A clear vision that distinguishes and defines the uniqueness of Zimbabwe as a nation has not been cast. What will we be known for as a nation two years from now? When the mineral resources run out, what will be our major focus? Agriculture, manufacturing and innovation hubs like the rest of African countries?
Of great concern is the emphasis on widening the tax base to increase government revenues. What has not been convincing enough is how to rein in government spending. For the last three decades, policies have been created, but there has been a lack of discipline when it comes to implementation.
The measures to contain government spending in the TSP were unconvincingly broad and the few weeks after elections have not served to instil confidence as spending priorities are conspicuously skewed. Luxury cars in a country with a significant number of potholes is not a balanced approach in addressing productivity issues.
Zimbabwe is arguably one of the richest nations in the world in terms of resources but unfortunately it has suffered from the “resource curse”.
What would be revolutionary with the Mnangagwa administration would be policymaking centred on cost cutting and cost effectiveness. Not only would it inspire confidence; it would gain them the support from members of the public.
Moreover, paying attention to government spending would also reduce the financial burden passed on to the country. Had the majority of the US$9,5 billion domestic debt been channelled to productive sectors of the economy, the country would not be demanding the 2% tax from the public.
Why is it not punishable when the government goes against the Section 11(1) of the Reserve Bank Act [Chapter 22:15], which states that the borrowing from the Reserve Bank shall not exceed 20% of the previous year’s government revenues at any given point?
Why are government deals with China difficult to access when they should be easily made available to the public? Unfortunately, as Zimbabweans, we have been numbed and we are being forced to believe that this is real economics through the face of the well-educated Ncube and the whispers of the IMF. If we manage to get funding from the IMF, it shall be hailed as a great achievement, but will it take Zimbabwe out of this economic muddle?
In any set-up, whether a family or nation, when there is a lot of money, it is difficult to notice that there are problems, but as soon as the money runs out, the real issues begin to surface.
This has been the Zimbabwean story. The only way to resolve this is by going to the basics of instilling good governance principles back into government to manage any resources the country has.
Ratisai is a Harare-based economist.