Sustaining the Zimdollar

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I AM naturally enchanted by the logic, sequence and clarity of a thought process. But l have grown to learn that, quite often, economic plans are elaborately ornamented.

The number of economies with utterly fabulous economic blueprints that failed — and Zimbabwe has witnessed many of these — ably evinces this assertion. As such, it is really the implementation, coordination and follow through that make a huge difference.

Now that we have dealt with the contentious issue of optimal currency option, through the establishment of our own sovereign currency, the next step is to address the economic distortions and then focus on production. The first two will usher in currency as well as price stability and increased production will deliver growth.

A combination of these two will result in growth with stability, which is a desired economic situation. However, beyond growth and stability, focus should shift to achieving economic prosperity and development so as to get to the “promised land”.

Now, importantly, getting to this “promised land” requires unwavering commitment to proper economic governance and statecraft.

Today, as Zimbabweans, we are confronted by the sad reality that, while it took the Israelites 40 years to get to Canaan, “the promised land”, 39 years after independence we are still to achieve the desired economic stability, let alone prosperity.

However, we take comfort in that, at least our economy is back on track now.

I am saying this not because of blind optimism or simply because the country’s economic blueprint, Vision 2030, is in line with my thought process, but because, so far, we are at least seeing some efforts on the implementation front. It is thus by no coincidence that achieving stability, through the implementation of Transitional Stabilisation Programme (TSP), which runs from October 2018 to December 2020 is the country’s top priority at the moment. Zimbabweans today are more concerned about currency and price stability as memories of the 2008 hyperinflation are still fresh in their minds. This is especially so now when we have just reintroduced our own sovereign currency.

As the monetarists say, inflation is always and everywhere a monetary phenomenon. Controlling monetary expansion, itself driven by fiscal imbalances, should be the key focus of policymakers today. This makes fiscal rebalancing top priority. Whilst Treasury has made significant efforts towards fiscal consolidation, through its austerity and revenue-enhancing measures, my recommendation is that these efforts should now be tilted more towards reduction in Government expenditures through mainly the expediting parastatals and state-owned enterprises (SOE) reforms, winding down unsustainable Government subsidy programs, rationalisation employment costs mainly through reduction of senior civil servants/ allowances and judicious use of the country’s revenues.

Whilst reiterating the need for the government to live within means, we always need to be clear about the instruments at our disposal to achieve this. Firstly, we have the Parliament to ensure that Government borrowings are within statutory limits mainly, maximum debt levels of seventy (70) percent of GDP and overdraft on RBZ not exceeding (20) percent of previous year’s revenue. Its concerning that our Government has been doing poorly on these and our law makers have done nothing worth mentioning about it. Given this, our main source of comfort is Professor Mthuli Ncube’s commitment and progress towards adjust fiscal rebalancing so far, which saw improvement of fiscal balance from average deficits of above 10% of GDP to primary surpluses since the last quarter of 2018.

Whilst we have achieved primary surpluses so far, overall, we are still in a huge deficit due to legacy obligations. What’s also comforting is Treasury’s commitment to reduce the overdraft on RBZ to five (5) percent of previous year’s revenues, which is even lower than the statutory limit of twenty (20) percent. As l talk about the progress we made so far as a country, l am naturally tempted to advise our leadership against unproductive borrowing by the Central Government as it is the worst form of printing money, which actually got us into hyperinflation, and has huge potential to reverse all the progress made so far.

Importantly, faced with economic distortions, fiscal sustainability is difficult to achieve. This calls for urgent action from Government to address these distortions, typified by mainly subeconomic tariffs for utilities, unsustainable subsidies on fuel and the so called essentials such as maize, wheat and soya beans. These distortions have been costing the country billions of dollars every year, contributing largely to currency instability. With current tariff of US$0.01c/unit against import cost of electricity of US$0.06c, revelations that ZETDC has been struggling to raise equivalent of US$10million RTGS$ to service the debt due to Eskom, let alone the total amount of around US$83million needed by the latter and Cahora Bassa to resume normal electricity supplies to the country are unsurprising. Equally, despite the recent increase in fuel prices to ZWL$7.47 and ZWL$7,19, which is actually the fifth one since November 2018, when it was first increased to $3,31 and $3,13 for petrol and diesel, respectively our fuel prices are still subeconical. The current US$ fuel price equivalent of around 0,70c is still lower the average landed price at Msasa of US$0,71c, which is the price before loading the duties, levies and seller’s margin. The same applies to our water, which continues to be supplied at sub-economic prices.

These distortions have made the country’s fiscal position unsustainable. The US$1,2 billion obligations (blocked funds), that RBZ is currently working on a plan for its assumption was largely created from Government unsustainable support to the so called essentials including the utilities at exchange rate parity (1:1) when circumstances on the ground dictated otherwise. Thus slow progress towards tariff adjustments more damaging to the economy.

The country’s situation today required redoubling of efforts towards fiscal rebalancing and dealing with economic distortions. However, in doing so we should not forget the plight of the ordinary citizens. We should always raise their hopes of better days ahead through acting on our commitments. It is also important to alleviate economic burden through adjustments of not only civil servants, but private sector salaries. Contrary to what some pessimists think, this is not going to be inflationary given the sterilisation program at government level, where initially the, ZWL1.2billion (USS$1.2billion) blocked funds (unremitted funds) alluded to earlier are sucked out of the market by RBZ as part of its strategy to dealing with these blocked funds.

Whilst our own sovereign currency is seen as the optimum currency option for the economy today, its sustenance required fiscal discipline. This takes collective effort to make hard choices and denying the temptation of protecting narrow interests of especially greedy and irresponsible citizens.

Persistence Gwanyanya is a Chartered Banker, Economist and Trade Finance Specialist, who founded the Bullion Group. For feedback email percygwa@gmail.com or whatsApp +263773030691. These weekly New Perspectives articles are coordinated by Lovemore Kadenge, immediate past president of the Zimbabwe Economics Society (ZES). Email –kadenge.zes@gmail.com and Cell no. +263 772 382 852.

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