The macro tightrope
The Zimbabwean Transitional Stabilisation Programme (TSP) is a critical step in ensuring the country realises its Vision 2030 goals, the United Nations Sustainable Development Goals and the AU Agenda 2063. Commencing as of October 2018 with the aim of achieving its targets by 2020, the programme prioritises economic stabilisation, the stimulation of growth and employment, and fiscal consolidation.
One of the areas that is of keen focus is, of course, on stabilising the macro economy and the financial sector through some quick wins and the adoption of policies that will require a “painful trade-off and sacrifice”. The reality is that macroeconomic stability is a critical foundation for growth. It is also essential for the successful launching of a variety of projects and programmes that are set to be announced in the National Development Strategy 2021-2025.
To achieve this stability and sustainable growth, the TSP has identified four macroeconomic areas to address throughout the twoyear period. These include the macroeconomic environment, the restoration of fiscal balance, mobilising domestic savings and the competitiveness of exporters.
The Zimbabwean economy is predicted to achieve a 9% annual growth over the next four years, from 2019 to 2022. This is then set to achieve a moderate to sustained growth rate of more than 7% until 2030. The key macroeconomic targets outlined in the programme include a gross capital formation from 433.0 in 2018 to 6287.5 by 2020, a per capita income increase from 1720.1 to 2018.3, and a gross domestic product (GDP) growth from 6.3% in 2018 to 9.7% by 2020. Achieving these macroeconomic targets is the overarching focus of the stabilisation programme and the policies outlined are targeted at achieving each of these mandates.
The programme sets out to address the imbalances by building investor confidence through a stable macroeconomic environment that’s characterised by fiscal and monetary discipline alongside a sustainable balance of payments. Currently, the inequalities and issues in this environment are limiting rapid economic development. Public deficits are fuelling unsustainable fiscal borrowing and this is consuming scarce foreign reserves and continuing to undermine the stability of the currency. This weakness has also contributed to a low population savings rate, public debt, poorly main- tained infrastructure and increased costs to businesses.
The first step is to create an environment that allows for increased budget development expenditures and that enhances the economy’s productive activities. To this end, the programme targets the strengthening of fiscal responsibility and the management of government expenditure. The existing fiscal deficit is estimated at $1.4-billion and is projected to reach $2.7-billion if measures aren’t implemented to address it. To redress this, the programme has adopted measures that regain control and management of budget expenditure with a targeted approach to improve budget expenditure on essential infrastructure.
In addition, to minimise the impact of unsustainable and prolonged fiscal deficits, credit to the government and credit to the productive sectors, the programme has introduced gradual measures to tame these challenges over the long term. In the short term, the Zimbabwean treasury will be using non-inflationary financing mechanisms for the deficit. The government will also be reinstating its treasury bills initiative using an auction system as of January 2019. The goal of these bills is to generate liquidity developments and quick wins in fiscal stability. It will also be reviving its bonds with the creation of a secondary bond market, also timed for the start of 2019.
That said, the programme has specified that the practice of settling government debt with treasury bills is to be halted. The bills are now exclusively for raising resources to finance deficits and cash flow gaps. These measures will be further bolstered by the Fiscal and Financial Stabilisation Committee that will ensure that the fiscal and monetary targets outlined by the TSP are adhered to.
To drive the Zimbabwean economy towards upper middle-income status by 2030, the programme has introduced some policies that are designed to make it easier for domestic resources to mobilise. The first is the development of a simple and accessible taxation system. The goal is to nurture a competitive business environment and to invest in innovative design and administration around taxes. This includes simplified tax structures for small, medium and micro businesses. These measures are designed to drive sustainable taxation, reduce penalties and interest and create employment.
The second is to promote the emergence of a sound and resilient financial system that allows for economic diversification, sustained growth and reduced poverty. The programme is therefore making affordable credit more accessible and there is the possibility of a review of lending rate thresholds, reducing these to 8% per annum, or less.
The macroeconomic environment would not be on a cohesive track to sustainable growth without addressing the challenges of corruption. The programme specifically targets this as it is the leading cause of public revenue leakage in targeted areas such as ports of entry and exit, tax evasion and avoidance, smuggling and money laundering, and unethical procurement practices. As a result, corruption measures and policies are to be put in play to plug the holes and mend the country’s reputation.
Finally, to drive the competitiveness of exporters, the programme is geared to supporting the production of goods for export, as this remains one of the primary sources of foreign currency. It is also a critical element to the Vision 2030 goals and forms a central part of the TSP. The programme aims to strengthen monetary policy conduct, undertake currency reforms and improve foreign currency generation — all to stabilise the economy and the foreign exchange market.
The measures that have been implemented by the programme are tailored towards achieving realistic shifts in country and economy over the two-year period. Every step taken towards achieving these goals is one towards a country that’s set to overcome corruption, enhance exports, and improve currency competitiveness, capital inflows and the ease of doing business. At the end of the two-year period the country should be on a far stronger footing than today and more closely aligned with its 2030 goals.
Zimbabwe’s Transitional Stabilisation Programme, under Finance Minister Mthuli Ncube, seeks to build investor confidence through the creation of a stable macroeconomic environment. Photo: REUTERS/Philimon Bulawayo