Killing the goose that lays greenback (III)

THE Zimbabwean economy faces a whole host of chronic frictions that, if left unaddressed, risk entrenching a low-growth equilibrium. Zimbabwe’s path to sustainable growth hinges on more than symptom relief.

It requires a cohesive, policy-driven recalibration that aligns public incentives with private initiative.

The private sector represented by the Confederation of Zimbabwe Industries (CZI) and the Zimbabwe National Chamber of Commerce (ZNCC), recently urged an urgent roundtable with President Emmerson Mnangagwa to advocate for a policy reset after alleging that ministries and regulators had failed to deliver meaningful progress.

Friday Drinks in a podcast of August 29, 2025 framed the crisis as depicted by the nine key issues. A Clearer View has been discussing the issues cited as a three-part series.

In week one, we covered: A high tax regime, pervasive corruption, chronic power outages and in week two we upacked acute water shortages, onerous and costly regulations and unpaid export surrender of around US$176 million.

In this third and last instalment under this series, we are analysing government contractors unpaid to the tune of US$1,2 billion and rising, proliferation of illegal goods and informalisation of industry, now estimated at 76% of the economy and government crowding out private-sector access to domestic credit markets.

In part three of this series, the last three interlocking levers — restoring cash-flow discipline in public procurement, accelerating the formalisation of the informal economy and rebalancing domestic credit markets away from sovereign crowding-out, provide a robust framework for rebuilding private-sector confidence, unlocking investment and stabilising the macroeconomy.

The following discussion elaborates each lever, offering the economic logic, signalling the channels of impact and practical pathways for policy action. While the current discussion is rooted in the three pillars, the argument remains attuned to the broader systemic dynamics: Fiscal credibility, regulatory clarity and a credible narrative of reform that must restore trust among households, organisations and international partners.

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Economic logic, stakes

In any economy, the timing and reliability of public payments to private suppliers and contractors function as the bloodstream of private-sector activity.

When the government contracts with firms, whether for infrastructure, services or procurement, these firms finance their operations through a mix of own funds, bank credit and payments due from the state.

If those payments are delayed, the liquidity that sustains payrolls, supplier contributions and ongoing capital expenditure evaporates.

The immediate consequence is a cascade: livelihoods affected, production lines paused and a domino effect rippling through sub-suppliers, logistics networks and downstream consumers.

But the consequences extend beyond microeconomic hardship. Recurrent arrears create a sovereign-risk signal that markets interpret as a defect in fiscal management. Creditors require higher risk premia, investment horizons shorten and the domestic term structure shifts toward risk aversion. In short, arrears are not a mere accounting nuisance. If the truth be told, they completely distort the entire tempo of economic activity, undermining private investment and eroding the credibility of public institutions.

A deeper look at the mechanics

• Multiplier drag and uncertainty: The private sector’s willingness to commit capital hinges on predictable cash flows. When the government routinely misses payment windows, companies face working-capital gaps, forcing them to batten down the hatches: curtail expansions, delay hiring and/or convert capital investments to shorter-tenure, lower-risk activities. The liquidity stress compounds as vendors rebalance supply chains, raise prices to offset risk, and/or seek more expensive credit terms, all of which suppress aggregate demand and investment momentum;
• Sovereign credit risk amplification: Arrears are a symptom of underlying fiscal fragility. They signal potential gaps between commitments and resources, eroding confidence in the debt path and widening sovereign credit spreads. The consequence is a “risk-led” tightening of financial conditions, where both domestic and foreign investors reprice risk, raising borrowing costs for the state and for private borrowers who share the same funding arteries in domestic markets; and

l Domestic demand instability: When arrears ripple through the economy, households experience income volatility (through delayed payments, layoffs, or reduced hours in dependent firms). This dampens consumption, lowers tax receipts and narrows the fiscal space for public investment in critical services that underpin productivity such as, energy reliability, water infrastructure, transport networks and health and education outcomes.

Policy recalibration pathways

• Statutory payment windows with punitive penalties such as codifying clear payment timelines for all public-sector obligations to private contractors, including a statutory interest charge for late payments and automatic escalation mechanisms for recurrent delays. Treat these windows as hard constraints rather than discretionary levers, thereby shifting public budgeting toward predictable cash-flow management;
• Public ledger and audit discipline: Establish a real-time or near-real-time public ledger that discloses undisputed payables, accrued arrears and forecast payments against approved budgets. This ledger should be independently audited, with regular public reporting and quarterly reconciliations to ensure accuracy and credibility. Such transparency reduces information asymmetry and reassures markets that arrears are being managed;
• Credible arrears-clearance roadmaps: Publish a phased plan to reduce backlogs with explicit timetables and milestone-based funding allocations. Link debt-service and procurement releases to progress against the plan and create a dedicated contingency facility to absorb shocks that threaten to derail the arrears-clearing process (for example, commodity-price swings or procurement delays);
• Strengthening project budgeting and contingency planning: Institutionalise rigorous project appraisal in cost-benefit analyses, sensitivity analyses and risk-adjusted discount rates. Create explicit contingency buffers within capital budgets to minimise overruns that feed arrears cycles. Introduce rolling capital budgets that are updated with quarterly feasibility reviews to mirror evolving macro conditions;
• Performance-based procurement reforms: Move toward outcome-based contracting for major capital expenditures, aligning payment triggers with demonstrable deliverables and measurable outcomes. This reduces discretionary leakage, improves cost control and ensures that payments reinforce value creation rather than procedural compliance alone; and
• Public-private governance and accountability: Elevate the role of independent commissions or oversight bodies tasked with monitoring procurement integrity, payment performance and project outcomes. Clear accountability, across political, civil service and agency levels. This move will prevent the drift into fiscal opacity and fosters a culture of responsible stewardship.
• Macro-economic channels, benefitsLiquidity restoration and confidence building: Predictable, timely payments revive cash flows for suppliers, sustaining employment and keeping investment pipelines intact;
• Sovereign credibility upgrade: A transparent arrears-management framework lowers uncertainty and improves access to international capital markets, potentially reducing borrowing costs; and
• Demand stabilisation: More predictable household incomes generated by stable supplier networks feed back into consumption and tax revenues, presenting a virtuous circle of macro stability.

Economic logic, stakes

Informality in itself is not merely a legal status; it is a systemic shield for risk-averse entrepreneurs operating in uncertain environments. However, informality imposes social and economic costs that accumulate across the economy: it shrinks the tax base, depresses public services funding, distorts competition, and undermines the rule of law with respect to standards, intellectual property, and contractual reliability.

A majority of informal operators, particularly micro- and small-scale enterprises, would transition to formality if the perceived costs of compliance were reduced and the returns of formal operation were demonstrably greater than the costs.

The challenge lies in designing a pathway that makes formality credible, scalable, and sustainable without crushing livelihoods or eroding competitiveness.

A deeper look at the mechanics

• Tax base expansion and public goods: When informal firms formalise, the tax base expands, financing essential public goods such as energy infrastructure, water management, and health services that underpin private productivity. A larger formal sector increases the predictability of revenue streams, enabling more stable public investment and a higher trajectory of long-run growth;
• Competitive levelling and productivity: Formal firms typically benefit from access to credit, legal recourse, and reliable contractual enforcement. They can invest in technology, process improvements, and training, which raises productivity and accelerates the diffusion of innovation through the economy. Informality, by contrast, fosters price dispersion and market distortions that penalise efficient, compliant firms; and
• Labour-market resilience and social outcomes: Informal workers are prone to earnings volatility and limited protections, which elevates income inequality and social risk. Bringing workers into the formal economy improves social protection coverage and reduces macro volatility associated with household debt distress, reinforcing macro-economic stability.

Policy recalibration pathways

• Streamlined, low-cost registration: Create a one-stop, user-friendly digital registration portal that reduces the bureaucratic frictions of formalising a business. Offer a fast-track track for micro and small enterprises, with a simplified, transparent tax regime that grows progressively with firm size and activity;
• Tax simplification and small-firm incentives: Implement a simpler, transparent tax framework for small formal firms — lower rates, fewer administrivia, and predictable filing schedules. Pair tax relief with automatic access to credit facilities and public procurement opportunities, enabling firms to recoup the incremental costs of formalisation through higher-revenue channels;
• Compliance tools that lower the cost of formality: Provide affordable, government-backed compliance infrastructure — digital invoicing, e-filing, simple accounting templates, and access to basic compliance training. These tools reduce the incremental cost of formalisation and lower the administrative burden on small operators;
• Targeted enforcement with a supportive upgrade path: Adopt a risk-based enforcement approach that prioritises high-risk sectors and large informal operators while offering advisory services, transitional assistance, and capacity-building programs to bring smaller actors into the formal economy gradually. The objective is to reduce the marginal cost of compliance and increase trust in the formal system;
• Industrial-policy coherence and procurement access: Align formalisation with procurement policies by granting formal firms easier access to public tenders, export incentives, and industrial support programmes. The promise of entry into lucrative procurement streams acts as a compelling incentive for formality, even for firms with limited initial compliance capacity; and
• Social protection and formalisation sequencing: Link formalisation with social protection benefits (e.g., access to affordable health coverage or pension schemes) to increase the perceived long-term value of formal operation. A staged approach — formalise payrolls first, then expand into full registry, then access to credit and procurement — reduces transition risk for informal firms.

Economic logic of incentives

• Revenue expansion and public goods: An enlarged formal sector increases tax revenue, enabling improved public infrastructure and services that raise private sector productivity and investment return expectations;
• Level playing field and innovation incentive: A formal economy reduces distortions that disadvantage compliant firms, thereby encouraging investment in technology, productivity-enhancing processes, and quality controls. It also strengthens enforcement of standards and intellectual property regimes, safeguarding creators and investors.
• Social and political exchange: Better social protection within a formal framework reduces household risk, stabilising consumption and supporting a durable investment climate.

Economic logic, stakes

Credit is the capital wheel that powers private-sector growth. When the government consumes a large share of domestic savings by issuing debt, it crowds out private borrowers, raising interest rates and constraining productive investment.

This crowding-out effect slows technology adoption, hampers capacity expansion and depresses job creation. The macroeconomic consequence is a fragile growth path: private credit growth is stifled, investment undertakings are delayed or cancelled and the country remains hostage to a brittle cycle of low investment, low productivity and slow GDP growth.

A rebalanced credit market, in which sovereign debt issuance is aligned with the economy’s absorptive capacity and private investment needs, is essential to break this cycle.

A deeper look at the mechanics

• Liquidity competition and rate dynamics: High government borrowing absorbs the available liquidity, leaving banks with reduced capacity to lend to private firms at reasonable rates. The altered term structure elevates the cost of financing for businesses seeking moderate-term investment funding, dampening growth prospects.
• Growth and productivity linkages: Access to credit underpins plant expansions, adoption of capital-intensive technologies and energy-efficient upgrades. When credit is scarce or expensive, firms substitute away from growth-enhancing investments, leading to stagnation or decline in potential output.
• Financial stability considerations: Heavy sovereign issuance in domestic markets often distorts the term structure, magnify rollover risk and propagate systemic vulnerability if macro shocks arise. A narrow, sovereign-dominated credit market reduces resilience and increases the likelihood of abrupt credit tightening during stress episodes.
• Policy recalibration pathways: A credible triad of fiscal prudence, targeted monetary tools and market deepening are required.
• Fiscal consolidation paired with credible debt management: Implement stringent spending controls and revenue-raising reforms to stabilise the debt trajectory. Publicly communicate a credible consolidation path to anchor expectations and reduce risk premia, thereby easing the macro-financial environment.
• Targeted credit facilities and monetary coordination: Where possible within the RBZ’s mandate, create or expand targeted lending facilities that channel credit to productive private investment, such as manufacturing, agribusiness and exports, without wholesale distortion to the pricing of credit. Use macroprudential instruments to ensure that such facilities do not fuel excessive risk-taking and that they reach the intended sectors.
• Deepening domestic capital markets: It is vital to expand the menu of fixed-income instruments to broaden the investor base and improve funding options for private firms. Accelerate the development of primary and secondary markets, enhance market infrastructure (clearing, settlement and credit information), and introduce credit-risk assessment enhancements to reduce information frictions.
• Credit-information infrastructure and risk assessment: Build a comprehensive, accessible credit-information system that captures data on borrowers and lenders. Reliable data lowers information asymmetry, reduces adverse-selection and expands credit access for credible firms, particularly SMEs seeking growth capital.
• Resilience mechanisms and cost-smoothing: Create buffers in debt-service costs, such as reserve funds or stability facilities that can moderate repayments during downturns, thereby reducing the risk of abrupt credit contractions that could destabilise private-sector activity.

Economic logic and expected macro benefits

• Reallocation of credit toward productive private investment: Reducing sovereign crowding-out frees up bank balance sheets for private lending, stimulating investment, productivity upgrades and export-oriented growth.
• Lower financing costs and greater investment confidence: A credible debt path among policymakers reduces risk premia, stabilises inflation expectations and fosters a more predictable financial environment conducive to long-horizon investments.
• Financial market development and resilience: A deeper, more liquid domestic market improves risk-sharing, broadens funding sources and supports financial sector innovation, ultimately contributing to economic stability and resilience.

Integrating the three levers into a coherent reform narrative

While the three policy levers operate in distinct domains - public finance, the private sector’s formality and the structure of domestic credit—they are deeply interconnected. Restoring timely public payments strengthens private cash flows, which in turn supports private investment and tax revenue that buttresses debt management.

Accelerating formalisation broadens the tax base and improves the financing environment, reducing fiscal pressures that might otherwise feed arrears or rely on ad hoc arrears - management solutions.

Finally, rebalancing the credit market reduces the crowding-out of private investment, stabilising growth expectations and enhancing the capacity of the private sector to repay and invest, thereby improving sovereign debt sustainability over time. A chained reform package that sequences these levers - payment discipline first, formalisation second, credit rebalancing third - maximises the probability of durable success.

A roundtable with the President

• Frame the crisis as chronic, multi-dimensional and interdependent: The nine points, highlighted above, interact synergistically and addressing one in isolation yields limited results.
• Prioritise “do-no-harm” reforms: Focus on stability-first measures that preserve macroeconomic balance, while sequencing structural reforms to unlock private investment.
• Establish a credible reform roadmap: Publish a transparent policy package with short, medium and long-term milestones, budgeted financing and performance metrics.
• Emphasise private-public collaboration: The private sector should be seen as a partner in implementing reforms, not merely as beneficiaries of government action.
• Commit to empirical monitoring: Set up an independent monitoring mechanism to track progress on tax simplification, corruption reduction, energy reliability, water management, regulatory reform, arrears clearance, formalisation and credit access.

Expected macroeconomic benefits

• Higher potential growth: With reduced regulatory friction, stronger enforcement of property rights, improved energy and water reliability and formal sector expansion leading to potential GDP growth meaningfully rising from current rates.
• Employment gains: Formalisation and investment growth translate into job creation across manufacturing, services and agribusiness.
• Inflation containment: Economic stabilisation and credible fiscal policy reduce inflationary expectations, easing cost pressures on households and firms.
• Improved external stability: Clearer export remittance flows, reduced arrears and a more competitive economy bolster the balance of payments and currency stability.
• Social welfare improvements: Better public services funding, enhanced governance and stable employment improve living standards and reduce inequality.

Conclusion

The nine crises highlighted by the Zimbabwe private sector collectively signal a systemic risk to the country’s growth trajectory, macroeconomic stability and social welfare.

A serious, transparent and well-paced policy response is essential. The roundtable with the President should catalyse a credible reform programme anchored in tax simplification, anti-corruption measures, energy and water sector reforms, regulatory rationalisation, expedited payment of arrears, formalisation incentives and prudent, growth-supportive fiscal-monetary coordination.

If implemented with discipline and accountability, these measures have the potential to restore private-sector confidence, attract investment and unlock the pathways to sustainable prosperity for Zimbabwe

• Ndoro-Mukombachoto is a former academic and banker. She has consulted widely in strategy, entrepreneurship, and private sector development for organisations in Zimbabwe, the sub-region and overseas. As a writer and entrepreneur with interests in property, hospitality and manufacturing, she continues in strategy consulting, also sharing through her podcast @HeartfeltwithGloria. — +263 772 236 341.

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