A FORTNIGHT ago Zimbabwe launched its five-year economic blueprint succeeding the Transitional Stabilisation Programme (TSP), which lapses at the end of 2020. The latest blueprint is the 12th since 1990 and comes in as part of government’s 10-year economic plan covering the period 2021 to 2030.
Economic blueprints are important as they reflect the nation’s vision and give guidance on specific policy action which will be taken to achieve the intended targets. These blueprints come with key economic targets such as the intended inflation targets, intended growth targets, envisaged employment levels, investment levels, debt and other similar measures over the duration.
As highlighted above, Zimbabwe has had a good number of these blueprints since Independence and these typically would have been expected to redeem economic fortunes or foster growth.
Some of the key blueprints include Economic Structural Adjustment Programme (Esap), which was unveiled in 1990, covering the period 1991 through to 1995. The programme largely entailed the removal of all market controls and the adoption of market forces in the determination of prices, that is, trade liberalisation, financial sector liberalisation and the removal of exchange and price controls.
Government targeted a gross domestic product (GDP) growth of 5% and a conservative inflation target of 10% over the course of the five years. A budget deficit of 5% was targeted down from 13%. Just like the TSP (2018-2020) and National Development Strategy (2021-2030), Esap was liberal, but interestingly failed to achieve its intended targets.
A review of the policy shows that it grossly missed targets, with inflation spiking to an average of 46,7% from 39,7% against a target of 14%. This was, of course, an implication of removal of subsidies. The budget deficit increased to -12,2% against a budget of 5%, which in turn impacted private investment. More critically, growth stagnated to an average of 0,5% against the 5% target.
We will look at more examples as we go, but from this, it is clear that achieving growth and price stability is typically a radical move which may not yield the desired results if concurrently pursued over the short-term period.
In 2018 when the government introduced the TSP, which is similar to Esap, it was meant to reconfigure the economy towards market orientation, but it ignorantly omitted the lessons from Esap. The TSP targeted an average growth of 8% and a very stable inflation outturn of 20%.
The simple reading from liberalisation is that when subsidies are removed, prices rerate and find equilibrium at a higher level, inflation thus increases and this drags down consumption levels. Once consumption levels reduce as disposable incomes shrink, national output contracts. This reading was as evident in 1993 as it was in 2019 and hence the projections over the later period were unrealistic and misleading.
Surprisingly, the latter document was hailed across industry for its liberal stance. Observers did not look at the underlying assumptions, especially the key performance drivers. Observers focussed on intentions to restructure quasi-fiscal entities, which were so detailed in the documents but focused less on key performance matrices.
All targets were clearly missed, but the government hails it as one of the most successful blueprints in the history of independent Zimbabwe. After Esap, there was Zimprest, which was later followed by MERP1 and two early into the new millennium. Over the Zimprest period, the economy went into recession, with growth averaging -4% against a positive 6% target. Over the MERP1 and two period, the economy contracted further to an average of about 19%. This was one of the worst economic periods in the history of post-colonial Zimbabwe.
This trajectory has largely been unchanged in recent years. The targets of the blueprints have failed to materialise and should we expect a different trajectory for the NDS1. The NDS1 comes at a time the transitory phase of the economy is almost lapsing, based on the emerging trends in inflation and exchange rate.
A more stable inflationary environment and exchange rate environment are ideal for growth. While this is encouraging and gives impetus to growth, the basic underlying drivers of a stable monetary environment are a growing productive base (output), slower growth in base money, which in turn may be a function of government expenditure. In periods over which government spend surpassed revenues, typically the tendency to induce money supply was high.
In 2020, over the first-half of the year, money supply increased at a very high rate, but has since slowed down in the second half. Removal of subsidies and liberalisation of the exchange rate have helped achieve stable money supply growth. Further, government revenue has sharply picked up with the removal of stringent lockdown measures.
Production has also been motivated by a more stable pricing and exchange rate regimes. However, my persuasion is that all this is not enough to stabilise the economy and foster a sustainable growth trajectory.
To achieve the desired 2030 goal of an upper middle-income status, Zimbabwe will need to grow at an average rate of about 12% per annum over the next 10 years. Odds based on past experience do not favour the country to achieve the intended status. The country has moved from longer cycles to shorter economic cycles and hence boom and troughs are now all short lived, which means much expected volatility. Furthermore, incomes have not yet adjusted since de-dollarisation and this means forecasting increased spending over the next one year is highly ambitious.
My view is that government policy should be buttressed by tough action on the fiscal front. The country requires more fiscal breathing space and prudent policies to cushion growth. Reforms are imperative on the economic front as much as they are on the political front. With FDI numbers showing a contraction, a more stable economic environment is critical in harnessing domestic investment and a private sector led recovery. Private capital is insulated by the rule of law, while monetary stability hinges on expectation and thus shoulders on perception.
If the government sees through the parastatal reforms envisaged in the TSP, about 15% of national resources will be spared which in turn can be channelled towards other critical sectors such as infrastructure development.
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