A review of the Transitional Stabilisation Programme (II)

IT is necessary and desirable to rethink the current conventional macroeconomic thrust.Conventional macroeconomic policy framework inordinately focusses on the attainment of macroeconomic stability as an end in itself at the expense of employment creation and poverty reduction. It has been observed in many countries that obsession, with eliminating fiscal and current account deficits, if achieved through cutbacks in public expenditure, especially on development and social services, can retard the process of growth and result in an increase in poverty.

ProsperChitambara
ACADEMIC

Importantly, in the words of Nayyar (2011), “it is essential to return a developmental approach to macroeconomic policies that are based on an integration of short-term counter-cyclical fiscal and monetary policies with long term development objectives”.

There is a need to redefine macroeconomic objectives so that there is an equal focus and prioritisation of both economic growth and employment creation. For instance, the fiscal policy must contain clear economic growth and employment creation targets. Macroeconomic policies must contain policy tools and strategies for employment creation in labour-intensive sectors.

It is vital to adopt a pro-poor, decent work-rich and sustainable development framework. This alternative approach prioritises people and their basic needs (such as food security, healthcare, education, housing, transport, access to public utilities, decent jobs, social protection and rural infrastructure), as well as ring-fencing expenditures thereto. In particular, investments in health, education and infrastructure have a positive effect on the accumulation of human and physical capital, as well as total factor productivity.

Macroeconomic policies for development require partnership and coordination. Government policies must be the result of a process that involves the much-needed broad-based participation of all key stakeholders, including the working class and civil society; not just the private sector.

The global consensus is that broad-based stakeholder participation in policy development is critical as it engenders national ownership, accountability and transparency. In fact, the major reason for policy stillbirth and failure in many countries, including in Zimbabwe is the lack of effective participation by the citizens and key stakeholders.

In the context of a dual and enclave economic structure and the consequent prevalence of poverty and deprivation, it is vital that the poor and marginalised be integrated into the growth dynamic.

Economic growth must be translated into productive employment growth which is a key nexus between growth and poverty reduction. It has been demonstrated that economic growth does not necessarily ensure poverty reduction and development, but only does so when it is accompanied by a rapid expansion of productive employment. The government should consider employment creation and the attainment of full employment as priority macroeconomic policy objectives for poverty eradication.

To stem the tide of deindustrialisation and informalisation requires the creation of enabling and supportive policy, institutional and regulatory framework that reduces the cost of doing business and improves the investment climate. There is an urgent need to streamline and simplify the doing business environment. The plethora of taxes, levies and statutory fees must be reduced through the adoption of a uniform tax regime.

Government must urgently embrace an e-government system that includes company registration and national procurement. E-governance can also help to make public service provision and governance more efficient and effective and also mitigate corruption by raising transparency and accountability through digital footprints and reducing face-to-face interaction. The e-governance system must also entail the adoption of biometric payroll registration of public sector workers and pensioners.

It is important to strengthen and reform key institutions namely: state enterprises and parastatals. The reforms should be designed to enhance accountability and transparency in state operations and in major economic institutions. In particular, our state enterprises and parastatals must be transformed into autonomous and profit-oriented institutions with pro-market regulations and corporate governance mechanisms. It is now recognised that a participatory approach to restructuring is key to its success.

Public sector reforms are most likely to achieve their objectives of delivering efficient, effective and high-quality services when planned and implemented with the full participation of public sector workers and their unions and consumers of public services at all stages of the decision-making process. A participatory restructuring culture helps to transform the public enterprises into an effective results-oriented long-term coalition by reconciling the various conflicting interests.

This is also known as Socially Sensitive and Inclusive Enterprise Restructuring. There is also a need to reform and strengthen property rights in the agricultural sector through granting transfer rights. A productive economy requires that assets be used by those who can do so most productively, and improvements in property rights facilitate this by enabling an asset’s mobility as a factor of production (for example, via a rental market).
There is considerable scope for enhancing fiscal space in Zimbabwe and thereby strengthening domestic resource mobilisation for sustainable development.
This can be achieved through:

l Taxation reforms;

Rationalising the structure of government;

l Plugging loopholes to eliminate leakages, as well as illicit financial flows; and

l Leveraging remittances from the diaspora.

Taxation plays a fundamental role in the mobilisation of resources for the allocative, distributive, growth and stabilisation functions of the state. The current taxation regime is onerous and distortionary (with so many taxes, levies and statutory fees) seriously eroding competitiveness. While some progress has been made in tax policy and administration, it is imperative to further reduce the high marginal tax rates in order to lower the high cost of doing business and to increase real incomes among economic agents so as to boost aggregate demand in the economy.

High marginal tax rates encourage tax evasion (through illicit financial flows) and force small businesses to go or remain, informal. Evidence from a number of countries suggests that tax compliance rises as tax rates fall. There is plenty of scope for the country to expand the fiscal space base and broadening the tax base by migrating beyond broad-based taxes to alternative revenue sources. One promising option is corrective taxes because they can promote efficiency while raising revenues.

A number of Asian countries have introduced corrective taxes. Corrective taxes, or “sin taxes”, are levied on goods and services that are considered to be bad for the individual or society at large (demerit goods).

Examples include taxes on alcohol, cigarettes and products and activities with negative environmental consequences. Corrective taxes can improve fiscal revenues while at the same time reducing socially and environmentally undesirable activities thereby promoting good public health. A review of literature in many countries has demonstrated that tobacco taxes reduce tobacco consumption while providing a stable and reliable source of fiscal revenues.
The World Health Organisation (WHO) has also been advocating for a sugar tax on sugar-sweetened beverages to fight the scourge of non-communicable diseases (NCDs). The sugar tax, apart from reducing consumption of sugary drinks, also raises additional revenues for the treasury.
On April 1, 2017, South Africa introduced a 20% sugar tax on sugary beverages. This is part of the South African Government’s strategic objective of preventing and controlling NCDs and obesity.

It is imperative to undertake structural reforms to reorient and restructure the anatomy of government and the public sector in general. It is often argued that Zimbabwe is “over-governed encumbered with a lot of bureaucracies and red tape, over-regulated, over-policed, over-taxed, over-levied and yet its underdeveloped”.

The bloated structure and bureaucracy has imposed a severe opportunity cost on development. What the country needs is a lean but efficient service-oriented government that is responsive to the development needs of its citizens, and stakeholders fully harnessing and embracing the potentialities of e-government.
A number of countries have taken the bold action of closing down and merging some of their ministries and departments. For example, Kazakhstan in 1997, through a presidential decree, reduced the number of ministries from 21 to 14 and the number of government bodies from 47 to 24. The optimal and ideal cabinet size for Zimbabwe is 15.

Leveraging remittances from the diaspora. It has been shown that remittances are a significant and stable source of financing in many developing economies contributing immensely to development and poverty alleviation. There is scope for the country to leverage greater remittances inflows for sustainable development by increasing incentives, reducing the cost of remittances services and improving the overall investment climate.

Chitambara is a scholar based in Harare. These weekly New Perspectives articles are co-ordinated by Lovemore Kadenge, immediate past president of the Zimbabwe Economics Society. — kadenge.zes@gmail.com or mobile +263 772 382 852.

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