Ceteris Paribus:Respect Gwenzi
Two months after securing a five-year ruling mandate, the new government of Emmerson Mnangagwa unveiled a two and a quarter year period economic policy programme. The programme was a precursor for two national developmental programmes, with each going for a five-year period between 2021 and 2030. The Transitional Stabilisation Programme (TSP) was therefore seen as providing the necessary economic stabilisation required for the economy to foster a sustainable growth trajectory espoused in the national development plans over 10 years. These collective aspirations underpinned the new administration’s broader Vision 2030.
This essay reviews performance of the TSP over the two-year period and is published ahead of Treasury’s caucus with news editors on Monday which will review progress on economic reforms under the TSP. I have written several pieces on the TSP over the last two years focusing on the feasibility and effectiveness of the policy thrust. In 2018, my submissions were that the TSP was over ambitious and largely unattainable given the then prevailing macroeconomic environment and the carryover overweight structural economic defects which would require a more robust reform approach.
Two years on, it is very evident that the broader benchmarks set were widely missed, meaning therefore that the policy failed. The broader benchmarks set in the TSP were a GDP growth of 9% for 2019 and 9.7% for 2020. In 2019 GDP growth turned negative to -9.5%, its worst performance in 10 years, and wide off the TSP mark. Yet again the 2020 GDP performance is evidently going to be worse off with a slowdown of at least -10% expected. This again is way off the mark. The TSP was concurrently launched with the austerity program. The aim of austerity was to realign national expenditure and it evidently came with higher taxations and lower consumer spend. It is quite natural to expect an economic contraction when such a policy is pursued. To achieve a middle-income status by 2030, Zimbabwe would require an average growth rate of 10% per annum between 2021 and 2030, another pie in the sky.
Likewise, a stabilisation plan which focuses on fiscal realignment has the natural consequence of stifling economic growth in the short term. To set an ambitious GDP growth target of 9% for the short term was apparently insincere or a display of ignorance on how the economy works on the part of Treasury authorities. Annual inflation was projected at 5% over the two and a quarter year period. This too was ambiguous given that, by 2018, multiple price tiers persisted and the local currency (RTGS) was already showing disparity and spikes in relative terms. Annual inflation closed 2019 at 520% while for 2020 annual outturn will be between 400% and 600%. The level of variance between the target and the actual is very disturbing.
At the launch of the TSP, an analyst at Equity Axis posed a question to the Minister of Finance, Prof Mthuli Ncube, which sought to ascertain the effectiveness of an austerity programme in fostering economic stability as part of the TSP given a dollarised economy. It was the analyst’s argument that most successful austerity programs across the world are achieved in tandem with the adoption of weaker currencies. In the case of Zimbabwe, introducing austerity given a very strong USD would have a crippling effect on the country’s productive base.
Exports which would give alternative pockets of demand in a period where domestic demand is choked by low disposable incomes and higher taxation, would also come off. Lower domestic volumes would raise the cost of production per unit and further diminish price competitiveness of locally produced goods being sold in export markets.
At that meeting for which Equity Axis has kept a recording, the Minister of Finance rejected the local currency as an option, a point which he had highlighted in his TSP. In the TSP, the Finance Minister hinted that, although a new currency appears to be ideal in the efforts to realize a fruitful transition, its acceptability was very low and therefore would disrupt the stabilisation process. My interpretation of this statement is that as at 2018, government did not see it prudent to reintroduce the ZWL at least over the transitional period. This is also evident in the mild inflation forecasts, which would not hold in a year a local currency would be introduced. The TSP is, however, broader as it focusses, not only on results, but processes to achieve the results. The policy spells out well some of the pertinent processes that needed to be undertaken to achieve the targeted short-term stability and these include economic reforms such the general business climate, ease of doing business, efficiency and reforms in parastatals, devolution, curbing corruption, international re-engagement and reorientation towards capital expenditure.
Gwenzi is a financial analyst and MD of Equity Axis, a financial media firm offering business intelligence, economic and equity research. — firstname.lastname@example.org