Reviewing Transitional Stabilisation Programme

THE BRETT CHULU COLUMN
THE Transitional Stabilisation Programme (TSP), the action plan for the reforms agenda, was set to run from October 2018 to December 2020. We are less than four months away from the end of the TSP. It was meant to activate government’s vision 2030.
How has the TSP fared this far?
Economic growth
The TSP envisaged an economic growth rate of 4% for 2018. The growth rate was revised upwards by Finance minister Mthuli Ncube to 6,3% for 2018. The growth rate of 9% was expected for 2019. The final year of the TSP, 2020, was expected to deliver a 9,7% growth.
The series of rising economic growth were founded on the assumption of a successful programme of action on economic and governance reforms. The expected economic growth was tied to a corresponding rise in per capita Gross Domestic Product (GDP) growth.
Per capita GDP was seen improving as follows: US$1 720 in 2018 to US$1 883 in 2019 and US$2 081 in 2020. This quick growth would be significantly driven by gross capital formation (investment in new and replacement productive assets) at a level of 16,8% of GDP in 2018, 18,5% of GDP in 2019 and 19,2% of GDP in 2020. The TSP was clear that the desired economic growth could only happen if supported by key reforms such as fair application of the rule of law, upholding property and human rights, improvement in ease of doing business, private-sector led economic growth, improving international competitiveness and opening Zimbabwe to international investment.
The TSP growth targets for 2018 and 2019 were missed. The out-turn for 2018 was 4% against a target of 6,3%. The year 2019, growth was significantly negative: it was -8,3% against a target of 9%. In the final TSP year, economic growth is expected to be negative. The International Monetary Fund (IMF) is projecting a growth of -7,4%, against a TSP target of 9,7%. Notwithstanding the extenuating factors against economic growth, such as the Covid-19 pandemic and droughts, it is undisputable that the economic growth agenda of the TSP has dismally failed. Most of that poor growth is attributable to poor policy choices and lack of execution competence.
The year 2020 has seen bizarre decisions that impact negatively on investor confidence. The fungibility of three internationally traded shares, Pretoria Portland Cement, Old Mutual Zimbabwe and Seedco was suspended by Treasury. As if that was not bad enough, the entire Zimbabwe Stock Exchange (ZSE) was arbitrarily shut down for weeks over untested allegations that one counter was manipulating exchange rates. When the ZSE was re-opened on August 3, the trio who had been slapped with the fungibility ban were suspended from trading on the ZSE for an indefinite period.
The largest mobile money company had its thriving mobile phone business model disrupted over untested allegations. All this put paid to the TSP mantra of a private sector led economic growth and the creation of an attractive environment for foreign investment. Genuine foreign investors take cue from how local investors are treated. A good case for investing in Zimbabwe was dealt a severe blow by the heavy hand dealt five of Zimbabwe’s blue chip companies. Treasury is understandably now mum on the Victoria Falls Exchange, given the dust raised by the disturbance of our local bourse.
The recent signing of the US$3,5 billion compensation for the improvements on expropriated farms was meant to be the flagship demonstration that Zimbabwe was walking the talk on property rights. It was marred by a series renewed efforts to take over productive farms from white farmers. The increasing international outcry on human rights is undoing the positive efforts government has been making. Cartelisation of the economy continues unabated, extracting rents from the economy.
Price stability
Domestic price stability as measured by the consumer price index was seen by the TSP taking the following path: 4% in 2018, 5% in 2019 and 5% in 2020. The out-turn of inflation has been nothing less than horrific. In December 2018, year-on-year inflation was at 42,09%. Year-on-year inflation stood at 521,2% at the end of 2019. As at June 2020 year-on-year inflation stood at 713,26%. It is as clear as a cloudless noon-day that the intention of the TSP to keep inflation under control has been a phenomenal failure. Price instability has been a hallmark of the TSP.
Sound economic advice to defer the re-introduction of the local currency until the country had accumulated forex reserves of at least six months import cover fell on deaf ears. The banning of the multi-currency regime in June 2019 marked the precipitous fall of the local currency against the US dollar. We have moved from the 1:1 parity to 80:1 (auction rate) or 107:1 on the parallel market. It is an indictment on monetary policy that forex rates are still unstable.
Ncube foresaw this and put it on record in the TSP when he stated that: “While a new and more competitive currency appears to be part of the solution, it will be a challenge to introduce, given low confidence in its stability and little foreign reserves to support it.”
He capitulated to political pressure and let government prematurely end the multi-currency regime. Last week, in an interview with the Zimbabwe Independent, former Reserve Bank of Zimbabwe (RBZ) governor Gideon Gono correctly identified that the price instability we are facing is largely due to lack of confidence in the local unit and lack of political unity across the political spectrum. These assertions neatly sum up what the TSP had accurately identified the key enablers of price stabilisation.
Fiscal, monetary stability
Fiscal stability through fiscal consolidation was a key reform the TSP promised in order to bring about price stability in terms of domestic prices and foreign currency exchange rates.
The TSP pledged to bring down the budget deficit as a proportion of GDP from double-digit levels to 5,2% of GDP in 2019 and 3,5% of GDP in 2020. On a nominal basis, the TSP seems to have succeeded in instilling fiscal discipline. Budget surpluses were reported in 2019 and for the first half of 2020. The picture of a seemingly successful fiscal consolidation is marred by huge quasi-fiscal expenditures that are not being accounted for by Treasury.
The gold incentive scheme the IMF reported was being funded by printing money potentially ran into US$1 billion before the plug was claimed to have been pulled.
A serious indictment on the rosy budget surplus is the gross underfunding of key social services such as public health and low public service salaries.
Parastatal reforms are still a paper affair. No concrete results have been achieved. Traction on the external debt problem was meant to be expedited by a successful IMF Staff-Monitored Programme (SMP). The SMP review was done and the country failed to meet the mark. The debt relief programme is now off the rails. A Monetary Policy Committee (MPC) was introduced in 2020 as had been pledged in the TSP.
The MPC was instrumental in the launch of the forex auction system in a bid to let market forces determine the price of forex. Since the launch of the auction, the local unit has continued to lose value weekly, with over a 70% loss to date.
The TSP is off course. The coming five-year developmental strategy to replace the TSP will suffer the same fate if deep-seated economic and political reforms are not done.
Chulu is a management consultant and a classic grounded theory researcher who has published research in an academic peer-reviewed international journal. — brettchuluconsultant@gmail.com.

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