THAT President Emmerosn Mnangagwa and his government are now under growing pressure and all over the place trying to fix the broken economy is self-evident. They are clearly rattled and panicking — running scared — judging by their reaction to the current market turmoil and currency volatility.
Editor’s Memo Dumisani Muleya
Government’s crackdown on the market, using law and order instruments and the intelligence services, following the recent monetary and fiscal policy measures which triggered mayhem tell a story: feathers of the powers-that-be have been ruffled, hence occasional confusion, agitation and exasperation over the complex yet interrelated problems buffeting the economy.
While many of the country’s underlying fortes remain, its industrial and agricultural bases have been severely eroded. The economy is in a tailspin as diminishing net capital flows and an expansionary fiscal stance have created an acute liquidity and cash shortages. This has prompted the use of quasi-currency instruments amid imposition of controls over capital and current account transactions.
With re-engagement with creditors sluggish and access to funding limited, the huge fiscal deficit is being financed by domestic borrowing at an unsustainable pace.
Amid the chaos Mnangagwa is trying hard, although not making much progress. It seems he believes that “don’t fear failure, but rather fear not trying”.
Mnangagwa seems committed to the task of reform, at least at the level of rhetoric. Despite resistance to the reform agenda by some Zanu PF heavyweights, he is sticking with his man: Finance minister Mthuli Ncube.
For his part Ncube sounds informed and articulate on what needs to be done and on the roadmap. He knows and acknowledges he has an unenviable task before him ahead of his maiden budget speech this month: tacking deepening foreign currency and cash shortages; unsustainable high budget and current account deficits; rising inflation pressures; slow re-engagement process and arrears clearance strategy; infrastructure bottlenecks and poor social service delivery.
The minister, at the coalface of the smoldering crisis, also admits he has to deal with the unmanageable subsidies, especially on fuel and agriculture, and a series of austerity measures and reforms.
The runaway fiscal deficit sits at the heart of the problem. The budget deficit in the first six months of the year was about US$1,4 billion. It is expected to scale double digits at US$2,3 billion by year-end.
Stuck at the centre of the current fiscal imbalances, the deficit has had destabilising implications, not only to the financial sector but also to the rest of the economy.
Financing of the deficit has mainly been through domestic borrowing through Treasury Bills (TBs), RBZ overdraft facility and cash advances, arrears and loans from the private sector.
The deficit has fuelled expansion of the domestic debt from US$275,8 million in 2012 to current levels of US$9,5 billion. The external debt is US$7,4 billion. This brings the total public debt to US$16,9 billion.
Given a shrinking tax base, Ncube has cast his revenue collection net wider to rope in the informal sector with his regressive 2% tax that sparked off fierce public outrage. This has made his instantly unpopular with the already overtaxed and distressed Zimbabwean taxpayers. His critics say his taxation plan is going nowhere; trying to tax a poor nation into prosperity won’t work.
Beyond Mnangagwa and Ncube’s right noises and speeches, lies a harsh reality. While they are pontificating and frequently contradicting themselves on some key issues, the economy is imploding.
Companies are closing down. Mining giant RioZim has shut down three mines over lack of consumables and spares due to foreign currency shortages. The retail sector is reeling. Shortages have set in amid a wave of price increases.
Consumers now fear for the worst, with ghosts of the 2008 economic meltdown and hyperinflation still haunting them.
Business executives met Mnangagwa this week and rang the alarm bells. Only bold and sweeping measures can change the situation. But the problem is walking the talk.