TSP: Storm is over now

GOVERNMENT’S economic blueprint, the Transitional Stabilisation Programme (TSP), which was launched on October 5, 2018, was meant, as the name suggests, to stabilise the economy and put it on a sustainable growth path.

It runs its full course by year-end, after which it will be replaced by the first five-year National Development Plan (NDP).

Soon after its launch, Finance and Economic Development Minister Professor Mthuli Ncube warned that reversing the country’s twin deficits — the fiscal deficit, where expenditures were disproportionately more than revenues, and the external deficit through which imports were significantly larger than exports would involve a great deal of pain.

Economic reforms, he famously said, were like bitter medicine that had to be unavoidably taken to nurse the economy back to health.

As the TSP nears its end, the fundamental question is: has the bitter medicine worked?

Discipline

In a presentation to local media editors last week, Professor Ncube said significant gains had been made in enhancing revenue collection, containing runaway expenditure and balancing the budget.

Before 2017, the public sector wage bill used to chew 92 percent of Government revenues, which meant there were no resources to spare for infrastructural projects such as roadworks, dam construction, investment in health and energy, among key developmental projects.

However, the wage bill has now been slashed to 50 percent of the revenues.

Without the fiscal headroom to finance other key projects and programmes, the former administration resorted to Treasury Bills, which subsequently flooded the market.

Increased Government borrowings from the market had the adverse effect of crowding out the private sector and creating excess money, which became inflationary.

As a result, prior to the TSP, the stock of short-term instruments ballooned to more than US$7,6 billion, but this has since been drastically reduced.

Demonstrating Government’s commitment to fiscal rectitude and balancing the budget, a budget surplus of $29 million was recorded in the same month that the economic blueprint was launched.

Last year, the budget surplus topped $1 billion, while in the January to June period this year, a budget surplus of more than $800 million was achieved.

In addition to supporting social services and social protection, the country is presently witnessing some of the major infrastructure projects in local modern history.

The Harare-Beitbridge highway, just as other major road networks across the country, is currently undergoing major rehabilitation work, while dam construction has picked up pace.

For example, by the end of this month, two dams — Marovanyati Dam in Manicaland and Causeway Dam in Mashonaland East — will be complete.

Further, as part of elaborate plans to promote investment by both local and foreign investors, the Zimbabwe Investment Development Agency (ZIDA) has since been constituted.

The agency, which actually became fully functional in June this year, is expected to champion the ease of doing business reforms. Significant headway has been made so far.

Construction permits, which used to take 208 days, can now be processed within 150 days.

Stability

One of the bold moves made under the TSP is the re-introduction of the local currency, which begins with the separation of RTGS from Foreign Currency Accounts (FCAs) in October 2018, the same month the blueprint was launched.

The Reserve Bank of Zimbabwe subsequently abandoned the currency peg between the bond notes/RTGS and the United States dollar on February 20 last year, before introducing the Zimbabwe dollar, which had been abandoned in 2009, in November.

Although these reforms were not without their fair share of upheavals from a sceptical and anxious market, which caused worryingly volatility of the new currency and prices, the introduction of the Dutch Auction System for foreign currency trading on June 23 this year has been a game-changer.

The market-determined auction system has been complemented by a cocktail of interventions that include aggressively clamping down on indiscipline on mobile money platforms and the Zimbabwe Stock Exchange (ZSE). The introduction of the second auction system for small-scale businesses was another move that will further consolidate gains made under the auction system.

The exchange rate has stabilised and seems to have settled at an average $80:1 against the US dollar, and with it prices as well – which was the broader objective of the ambitious economic blueprint.

As a result, the premium on the parallel and official exchange rate has considerably declined from a peak of 300 percent on 22 June to the current 26,4 percent.

The storm appears to be over. Progress that has been made so far has been acknowledged by rabid critics such as Professor Steve Hanke — a US-based economist — who has since conceded that local inflation “is going to drop significantly”.

“Using high frequency data and sound science, I measure Zim’s inflation to be 452 percent/year, almost 300 percentage points lower than the official rate,” he tweeted last week.

Governance

The TSP was linked to the achievement of political as well as governance reforms that are foundations for sustainable growth.

Such reforms include aligning laws to the 2013 Constitution.

About 144 laws out of targeted 183 have been aligned.

Work on the remaining 39 laws is ongoing. The controversial Public Order and Security Act (POSA) and the Access to Information and Protection of Privacy Act (AIPPA), which were once described by President Mnangagwa as symbols of the old Zimbabwe, have since been scrapped.

POSA has been replaced by the Maintenance of Peace and Order Act (MOPA), while AIPPA will be replaced by successor legislation such as the Freedom and Information Act, Zimbabwe Media Commission Act and the Cyber Security and Data Protection Act.

The Freedom of Information Act was signed into law on July 1 this year, while the ZMC Bill and the Cyber Security and Data Protection Bill are currently before Parliament.

Remarkable success has been made through the foreign policy thrust of engaging and re-engaging the international community as part of a deliberate effort to reintegrate the country within the global family of nations.

Harare is now on talking terms with Washington, while relations with Beijing have been upgraded to a Comprehensive Strategic Partnership, which represent heightened diplomatic relations between the two countries.

Relations with countries such as Russia, Belarus, UAE, Israel Botswana, Guinea, Estonia, among others, are being deepened.

This deliberate endeavour to open up has seen sanctions against CBZ, Agribank and IDBZ being lifted.

Engagement with multilateral and bilateral creditors on international debt arrears is still continuing.

Other gains from the TSP are that Zimbabwe is now ranked by the Open Budget Survey (OBS) of 2019 as third in Southern Africa in terms of budget transparency, with a Budget Index Score of 49, up from 23 recorded in 2017.

A cornerstone of the economic blueprint was to spread development to communities through devolution in order to guarantee sustainable and equitable economic growth. Last year, $657 million was shared by the country’s 10 provinces, while $2,9 billion has been budgeted for this year.

Overall, the resources from Treasury are meant so sponsor development projects at local level.

Most importantly, Government believes that through the TSP it has established a solid foundation to support the envisaged economic take-off under NDP successor programmes.