Deep de­nial

Grandiose plans are drawn up as Zim­babwe crashes

Finweek English Edition - - Economic trends & analysis - GRETA STEYN

IT WAS SAD to read a re­cent speech by Re­serve Bank deputy gov­er­nor XP Guma posted on the Bank’s web­site. Sad be­cause the speech – about African mone­tary in­te­gra­tion – was made as the Zim­bab­wean econ­omy went fur­ther into melt­down. The speech shows that Guma is in deep de­nial.

It was all about how Africa had agreed to build this big econ­omy with a sin­gle cur­rency by 2015 and the con­ver­gence of eco­nomic indicators across the con­ti­nent. The plan is for African coun­tries to meet cer­tain cri­te­ria – among oth­ers on in­fla­tion, bud­get deficits, eco­nomic growth and for­eign debt. The tar­gets are to be met in stages. Once they have all been met, there will be a sin­gle African cen­tral bank and, like the Eu­ro­zone, a sin­gle cur­rency. The plan has been made in terms of the Abuja treaty.

Guma said that, for Africa as a whole, the fol­low­ing cri­te­ria would have to be met by 2008: a bud­get deficit as a per­cent­age of gross do­mes­tic prod­uct (GDP) of not more than 5%; cen­tral bank credit to gov­ern­ment not ex­ceed­ing 10% of the pre­vi­ous year’s tax rev­enue; in­fla­tion in sin­gle dig­its; for­eign ex­change re­serves that cover at least three months’ im­ports; re­duc­tion of cur­rent ac­count deficits to “sus­tain­able” lev­els; debt re­duc­tion to “sus­tain­able” lev­els; and achiev­ing and main­tain­ing a “high and sus­tain­able” rate of growth in real GDP.

This all has to hap­pen by next year. Clearly, it’s so much pie in the sky.

Take Zim­babwe. An ar­ti­cle on says that Zim­babwe in De­cem­ber re­vealed a bud­get deficit for 2006 of Z$824bn (US$3,3bn). This rep­re­sents a mas­sive 43% of GDP and is more than dou­ble the 18,7% fig­ure es­ti­mated in the mid­dle of last year. It’s laugh­able to con­tinue with a tar­get of 5% of GDP for African bud­get deficits for next year while th­ese are the kinds of fig­ures that are the re­al­ity.

A fas­ci­nat­ing as­pect of Zim­bab­wean Fi­nance Min­is­ter Her­bert Mur­erwa’s pre­sen­ta­tion in De­cem­ber last year is the fact that he didn’t pro­vide a fig­ure for over­all GDP growth for 2006. This is stan­dard pro­ce­dure ev­ery­where else. Mur­erwa claimed, how­ever, that the econ­omy was be­gin­ning to re­cover. But the In­ter­na­tional Mone­tary Fund es­ti­mates that the Zim­bab­wean econ­omy con­tracted by 4,7% last year. Again, it seems rather pa­thetic to cling on to a tar­get of “high and sus­tain­able” GDP growth by 2008 when a prom­i­nent African coun­try is in such deep de­cline.

Then there’s in­fla­tion. Zim­babwe’s in­fla­tion rate hit a new record of 1 729,9% in Fe­bru­ary from 1 593,6% in Jan­uary. At those lev­els of in­fla­tion – the high­est in the world – the econ­omy be­comes com­pletely dys­func­tional. The month-on-month in­fla­tion rate was 37,8%.

Guma, with a straight face, stated that the tar­get in­fla­tion rate for African coun­tries was sin­gle-digit in­fla­tion in 2008. Not a word from him on the in­fla­tion ex­plo­sion tak­ing place on SA’s doorstep. No, just a recital of the “ob­ser­vance” of the macroe­co­nomic indicators by 2008. All part of the sec­ond stage of mone­tary in­te­gra­tion in Africa, span­ning 2004-2009.

The fourth and fi­nal stage of African mone­tary in­te­gra­tion would see the launch of the African cen­tral bank and the in­tro­duc­tion and cir­cu­la­tion of the com­mon African cur­rency in 2015. Guma said a tran­si­tional pe­riod dur­ing which sub-re­gional cur­ren­cies would op­er­ate along­side the African cur­rency was en­vis­aged.

As­ton­ish­ingly, he added: “As the pro­gramme has pro­gressed, so ad­just­ments have been made, and the cur­rent state­ment of the pro­gramme en­vis­ages com­ple­tion by 2015; not 2021 as in the orig­i­nal think­ing.”

What’s even more strange is that the SADC pro­gramme en­vis­ages the es­tab­lish­ment of a re­gional cen­tral bank in 2016 and the launch­ing of a re­gional cur­rency for the SADC by 2018. Th­ese tar­gets don’t make sense if full African mone­tary union is the tar­get by 2015. It seems the SADC tar­gets haven’t been up­dated and Guma just went with the old ones, even though the pro­gramme then no longer makes sense.

The telling part of the speech comes at the end, when Guma said there were ques­tions that pol­i­cy­mak­ers would have to con­sider. “They in­clude the fol­low­ing: Should we con­tinue down this path? Do the pro­grammes have re­al­is­tic time frames? Are they on tar­get? For­tu­nately, I don’t have to wres­tle with them: and any as­sess­ment by me would be not only dis­cour­te­ous but also pre­sump­tu­ous.”

This is such a cop-out. Why does the deputy Gov­er­nor of the Re­serve Bank feel he can’t ad­dress the ob­vi­ous ques­tions that arise out of the plans for mone­tary union in Africa? It’s his duty to wres­tle with ma­jor ques­tions in a speech of this na­ture. Peo­ple are spend­ing time draw­ing up grandiose plans while Zim­babwe is im­plod­ing.

Doesn’t wres­tle with

the ques­tions. XP Guma

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