Fi­nance Min­is­ter lays out his plan

The Sunday Mail (Zimbabwe) - - OPINION & ANALYSIS -

THE peo­ple of Zim­babwe will pros­per only when Gov­ern­ment can lay the foun­da­tion of a sta­ble macroe­co­nomic en­vi­ron­ment that will en­cour­age in­vest­ment from home and abroad. The key to cre­at­ing such sta­bil­ity and build­ing con­fi­dence in the lo­cal economy is sound Gov­ern­ment pol­icy.

First, the Min­istry of Fi­nance and Eco­nomic De­vel­op­ment must es­tab­lish a clear bud­getary frame­work and the tar­get­ing and track­ing of key macroe­co­nomic vari­ables.

Sec­ond, the bud­getary frame­work will re­quire a process of fis­cal con­sol­i­da­tion and medium-term ap­proach, such as a three-year hori­zon.

Third, it re­quires institutional co­or­di­na­tion be­tween the fis­cal side and the mone­tary side (Re­serve Bank of Zim­babwe).

Fi­nally, Gov­ern­ment will have to pur­sue ex­ter­nal en­gage­ments and vis­i­bil­ity with main cred­i­tors, global IFIs (in­ter­na­tional fi­nance in­sti­tu­tions), global cap­i­tal mar­kets, G20 par­tic­i­pa­tion.

It may also con­sider cre­at­ing an in­ter­na­tional eco­nomic ad­vi­sory coun­cil.

For max­i­mum im­pact, it will be nec­es­sary to have a high de­gree of institutional co­or­di­na­tion.

On this point, a Macro­eco­nomics Co-or­di­na­tion Com­mit­tee needs to be cre­ated be­tween the Min­istry of Fi­nance, the Re­serve Bank of Zim­babwe, in the main, and also in­clude Min­istry of In­dus­try; Trade; Labour; and Zim­stats (for data) — the eco­nomic clus­ter.

This nexus of is­sues above is key to build­ing a sta­ble macroe­co­nomic en­vi­ron­ment.

The Min­istry of Fi­nance per­forms, of course, many other func­tions such as reg­u­la­tion, among oth­ers, which I am not ad­dress­ing in this piece.

The over­all vi­sion of cre­at­ing an economy with growth that is strong, sus­tained and in­clu­sive would be the bedrock of pol­icy for­mu­la­tion.

The bud­getary frame­work and per­for­mance should be based on cred­i­bil­ity and in­tegrity, mean­ing that the bud­get and ra­tions that ac­com­pany it should be re­al­is­tic and is im­ple­mented as in­tended.

The bud­getary process should also ad­here to prin­ci­ples of com­pre­hen­sive­ness and trans­parency, mean­ing that the bud­get and the fis­cal risk over­sight are com­pre­hen­sive and fis­cal and bud­get in­for­ma­tion is ac­ces­si­ble, as far as pos­si­ble, to the pub­lic.

Some of the risks are in fact off-bal­ancesheet risks for the fis­cal side.

The bud­getary frame­work should also be an­chored on pol­icy-based bud­get­ing, where the bud­get is pre­pared with due re­gard to gov­ern­ment pol­icy and ser­vice de­liv­ery ob­jec­tives.

This also un­der­pins a “value for money” ob­jec­tive, where pol­icy achieve­ments are weighed against the fi­nan­cial resources de­ployed, seek­ing to achieve ef­fi­ciency and high im­pact. There should also be pre­dictabil­ity and con­trol in bud­get ex­e­cu­tion.

This im­plies im­ple­ment­ing the bud­get in an or­derly and pre­dictable man­ner. It also im­plies the ap­pro­pri­ate exercise of con­trol and stew­ard­ship in the use of pub­lic funds.

The bud­getary frame­work also en­tails ef­fec­tive ac­count­ing, record­ing and re­port­ing.

There­fore, ad­e­quate records and in­for­ma­tion are to be pro­duced, main­tained and dis­sem­i­nated to meet de­ci­sion-mak­ing con­trol, man­age­ment and re­port­ing pur­poses.

Fi­nally, the bud­getary frame­work should be seen to be sub­jected to ex­ter­nal scru­tiny by the rel­e­vant leg­isla­tive com­mit­tees, the pub­lic, and credit rat­ing agen­cies, and key cred­i­tors.

Key IFIs are im­por­tant, es­pe­cially if Zim­babwe needs ex­ter­nal bud­get sup­port from bi­lat­eral donors, IFIs and oth­ers.

To sup­port the bud­getary frame­work and per­for­mance, it is crit­i­cal to in­vest in sys­tems that are ICT-en­abled.

Here, Es­to­nia is a good ex­am­ple in e-gov­ern­ment that is worth em­u­lat­ing.

Block-chain tech­nol­ogy prom­ises to be a good plat­form for de­vel­op­ing sys­tems with in­tegrity and trans­parency and ought to be con­sid­ered.

Block-chain tech­nol­ogy ma­chine”.

Rwanda has be­gun de­liv­er­ing health medicines and blood sam­ples by drone in re­mote ar­eas as part of the ar­chi­tec­ture of ef­fec­tive ser­vice de­liv­ery.

Given the wide mo­bile tele­phone cov­er­age in Zim­babwe, drone sys­tems work­ing off the mo­bile telecom­mu­ni­ca­tion sys­tem could be de­vel­oped for ac­cess­ing re­mote ru­ral ar­eas.

Zim­stats should start col­lect­ing data from Zim­bab­weans by mo­bile phone in­stead of phys­i­cal vis­its to house­holds.

When I was vice-pres­i­dent and chief econ­o­mist of the Africa De­vel­op­ment Bank, I im­ple­mented such pro­grammes suc­cess­fully in Tu­nisia and the DRC.

In short, tech­nol­ogy is a friend of ef­fec­tive gov­ern­ment sys­tems and ser­vice de­liv­ery.

Turn­ing to the sec­ond is­sue, the broader is­sue of a medium-term (three-year) bud­get cy­cle and fis­cal con­sol­i­da­tion process, it is im­por­tant to take at least a three­year is a “trust hori­zon in the bud­getary process and per­for­mance.

This will al­low for grad­ual ap­proach to fis­cal con­sol­i­da­tion towards tar­gets, giv­ing the whole process a roadmap that is trans­par­ent.

For ex­am­ple, the Min­istry of Fi­nance would set a tar­get for the bud­get deficit for Zim­babwe of, say, three per­cent and be­low, by year three, and then work towards achiev­ing this goal.

This is fol­lowed by clear ex­pen­di­ture con­trol mea­sures, es­pe­cially re­cur­rent ex­pen­di­ture, and rev­enue col­lec­tion tar­gets that meet the bud­get deficit tar­gets, and com­men­su­rate bor­row­ing tar­gets from the mar­ket.

By set­ting such fis­cal bound­aries, that en­ables mone­tary pol­icy run by the cen­tral bank to have clearer and fewer fis­cal con­straints, which is key to its pur­suit of its ob­jec­tive func­tion of in­fla­tion con­trol and tar­get­ing, and pay­ment sys­tem sta­bil­ity.

Mone­tary pol­icy can be­gin to work again and a Mone­tary Pol­icy Com­mit­tee is in­tro­duced, with­out the shack­les of fis­cal in­dis­ci­pline.

Good ex­am­ples ex­ist in South Africa and Botswana, for pur­poses of peer-learn­ing.

On the third item of macroe­co­nomic co­or­di­na­tion, there is need for fis­cal and mone­tary pol­icy co­or­di­na­tion in or­der to make sure that mone­tary pol­icy is not over-re­lied upon to a point where it at­tempts to be­come a sub­sti­tute for fis­cal pol­icy.

In­deed, the cen­tral bank should not be in­volved in quasi-fis­cal ac­tiv­i­ties.

Fis­cal pol­icy should be dis­ci­plined in or­der to en­able mone­tary pol­icy in the form of in­fla­tion tar­get­ing, in the main, to be equally dis­ci­plined, and be ef­fec­tive. Fis­cal in­dis­ci­pline con­trib­utes to in­fla­tion and pushes up do­mes­tic bor­row­ing.

Ris­ing debt means even higher debt in the fu­ture in an en­vi­ron­ment of high in­ter­est rates and low growth.

High in­ter­est rates, ex­ac­er­bated by a weak bank­ing sec­tor and pre­scribed as­sets in­vest­ment en­vi­ron­ment, then squeeze out pri­vate sec­tor bor­row­ing.

Banks merely pre­fer to hold Trea­sury Bills with high yield and lend less to the pri­vate sec­tor.

The yield curve in the fixed in­come mar­ket would then be down­wards slop­ping, and sti­fle the growth of a proper bond mar­ket with medium and long-term ma­tu­rity in­stru­ments — all lead­ing to fall­ing do­mes­tic in­vest­ment and lower growth.

In­sti­tu­tion­ally, there should be a Macro­eco­nomics Co­or­di­na­tion Com­mit­tee cre­ated, com­pris­ing the Min­istry of Fi­nance, Re­serve Bank of Zim­babwe, Zim­stats for data qual­ity, Min­istry of In­dus­try; Trade; labour; and plan­ning depart­ment.

The com­mit­tee would meet once a mont, but cer­tainly once a quar­ter, and of­fi­cials would con­tinue to in­ter­act in the in­terim. A macroe­co­nomic model that fa­cil­i­tates rig­or­ous sce­nario anal­y­sis and in­put should be cre­ated.

Each of the par­ties should be able to ac­cess the model and in­put data.

In ad­di­tion, a Dy­namic Sto­chas­tic Gen­eral Equi­lib­rium Model (DSGE) that com­bines the mi­croe­con­omy (con­sumers and in­dus­try) and macroe­co­nomic (fis­cal and mone­tary) should be built, and sim­u­late the di­rec­tion of the economy un­der var­i­ous sce­nar­ios, over a 15-year pe­riod or so.

This al­lows one to in­clude the in­for­mal sec­tor.

I have built a DSGE model for Ghana, Kenya, Nige­ria, Zam­bia, Sierra Leone, and trained pol­icy mak­ers from 40 coun­tries across Africa from both cen­tral banks and fi­nance min­istries.

On the broader macroe­co­nomic model, it can be con­trolled through es­pe­cially de­signed in­tranet plat­form.

I per­son­ally have im­ple­mented a macroe­co­nomic model and in­tranet in this way in a few coun­tries in Africa.

This way, eco­nomic pol­icy-mak­ers in Zim­babwe can en­gage with of­fi­cials from in­sti­tu­tions like the IMF and World Bank and oth­ers, at the same level, if not higher.

Fi­nally, ex­ter­nal en­gage­ments with part­ners is key, es­pe­cially with the IMF, World Bank, Africa De­vel­op­ment Bank, Chi­nese Im­port and Ex­port Bank, Afrex­im­bank, PTA & TDB Bank, KfW, cap­i­tal mar­kets, global bank­ing in­sti­tu­tions, be­ing in­vited to G20 meet­ings of fi­nance min­is­ters as ob­servers and guests.

In­deed, road­shows to visit bi­lat­eral cred­i­tors is im­por­tant as well.

Zim­babwe should also cre­ate a Zim­babwe In­ter­na­tional Eco­nomic Ad­vi­sory Coun­cil (Zieac), un­der the Min­istry of Fi­nance and work­ing with For­eign Af­fairs, so as to build a con­stituency ex­ter­nally, and help drive for­eign in­vest­ment into Zim­babwe.

Mem­bers of Zieac would be se­nior econ­o­mists with global in­flu­ence and stature, and se­nior busi­ness lead­ers. The mem­bers should be drawn from var­i­ous con­ti­nents in Europe, US, Asia, Africa, in­clud­ing Zim­babwe.

The new gov­ern­ment of Im­ran Khan in Pak­istan has just ap­pointed its ad­vi­sory com­mit­tee.

The tar­get is no more than 15 peo­ple, who will meet ev­ery quar­ter (phys­i­cally or vir­tu­ally) with the Zim­babwe of­fi­cials to brain­storm and give their advice on how to im­prove ef­fec­tive­ness glob­ally and do­mes­ti­cally for build­ing in­vestor con­fi­dence. Need­less to say, the con­di­tions for the ease of do­ing busi­ness should be im­proved sig­nif­i­cantly to make Zim­babwe com­pet­i­tive against its peers like Botswana, Zam­bia and Rwanda, for ex­am­ple.

All this helps cre­ate an un­der­stand­ing of what Zim­babwe is aim­ing to achieve on the macroe­co­nomic front, in cre­at­ing macroe­co­nomic sta­bil­ity and in build­ing in­vestor con­fi­dence go­ing for­ward.

The con­di­tions for the ease of do­ing busi­ness should be im­proved sig­nif­i­cantly to make Zim­babwe com­pet­i­tive against its peers like Botswana, Zam­bia and Rwanda.

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