The macro tightrope

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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

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