Economy set for rebound
GOVERNMENT is set to deepen the implementation of robust fiscal and monetary interventions to preserve the value and credibility of the Zimbabwean dollar through rooting out distortions and rent-seeking behaviour.
Speaking to The Sunday Mail at the unveiling of the 2021 Pre-Budget Strategy Paper on Friday, Finance and Economic Development Minister Professor Mthuli Ncube said Government will deploy a five-pronged strategy to stabilise the local unit.
The approach, he said, includes strengthening the foreign exchange auction market, restrictions on mobile money platforms, controlling money supply growth, fiscal discipline, and balancing the current account.
“In terms of stabilising the (exchange) rate, the measures we have taken are multifaceted,” said Prof Ncube.
“First of all, we introduced an auction system which is very transparent, but also a democratic system with clear rules. Democratic in the sense that you declare what rate you want and that you can afford, and we give you the foreign currency at the rate that you would have requested.”
He said the abuse of mobile money transfer platforms was fuelling money supply growth.
“Number two, I think our
restrictions on the mobile banking platforms in terms of some of the activities that we were beginning to see which were accelerating growth in money supply, the abuse of the platform, not necessarily caused by the companies, but by players who were making use of the platforms. So that abuse we dealt with.
“The third factor is that we have controlled the growth of money supply overall. If you look at the growth of M0, which is reserve money — that has been under control, minimal growth, and it’s well-targeted within the 25 percent target
— that’s typically (within which) developing countries like ours range.
“Fourth, it is the fiscal discipline, because in the past money supply and currency instability was caused by the fiscus, this was prior to 2018.”
He said Government will strive to continue to balance its books.
“Now we are running a balanced budget and having surpluses to an extent that has really contained the growth of the pressure in terms of growth of money supply coming from the fiscus and, finally is balancing the current account,” he said.
“When you have a current account deficit, not only are we exporting jobs but it means that you are not accumulating reserves, and therefore, cause a risk for your currency.
“But when you have the opposite — and right now we have that — we have a current account surplus — that bolsters demand for your currency because exports are growing faster than imports. So you can see that those five factors all coming together at the same time are stabilising our currency.”
This comes as the Reserve Bank of Zimbabwe (RBZ) yesterday unveiled a national call centre to facilitate reporting of alleged exchange control violations to the Central Bank, in a move that is anticipated to discourage illegal currency trading.
Safeguarding the ZWL
Interventions introduced by authorities to curb illicit financial activities and quell rapid depreciation of the Zimbabwean dollar against major currencies and stem inflation are already paying dividends. The interventions started with the introduction of the foreign exchange auction market, which was soon followed by strict restrictions on mobile money transactions. Since the foreign currency auction was launched in June, US$291 million has been allotted at the 16 auctions held so far, according to the RBZ Monetary Policy Committee.
Consequently, the local unit has enjoyed stability during the second half of the year, while inflation which peaked at 837 percent tumbled to 659,4 percent last month. It is projected to plummet further to 134 by year end.
“The introduction of a market-based foreign exchange auction system is being supported by implementation of strong fiscal and monetary policies for stabilising inflation, and the preservation of the external value of the local currency,” reads the strategy paper.
“Government is, therefore, committed to nurturing credibility in the new currency and any identified distortions that promote rent-seeking behaviour in the markets will be rooted out.”
Projections
Treasury projects the economy to further rebound next year as Government continues to consolidate the interventions that have brought economic stability over the last half of the year.
The economy is expected to grow by 7,4 percent next year driven largely by consumption (2,6 percent) and investment (5,8 percent).
According to the strategy paper, all sectors of the economy are expected to register positive growth, with the agriculture and mining sectors recording the highest growth rates of about 11 percent each.
Tourism is anticipated to register a 6,8 percent growth, driven largely by domestic visitors as restrictions on movement are gradually removed. The completion of several ongoing power projects and refurbishment of old power production units will drive the energy sector to a 10 percent growth.
Furthermore, the anticipated success of the forthcoming agriculture season is also expected to reduce demand for foreign currency and in turn further support exchange rate stability.
In addition, improved economic activity next year will bolster revenue collection above 13,4 percent of gross domestic product (GDP).
A budget deficit of around 1,23 percent is anticipated, which is consistent with targets set under the National Development Strategy (NDS) 1 and SADC recommended thresholds.
In the strategy paper, the recovery in consumption is mainly anchored on expected stabilisation of inflation through ongoing policy interventions which should aid restoration of purchasing power of consumers.
“Employers including Government will continue to review wages and salaries in line with inflation developments and budget capacity to restore eroded incomes as the economy recovers. Public investment is also expected to contribute 5,1 percent to GDP growth as Government pushes on some of the projects that stalled during the year.”
The economy will, however, continue to face unforeseen risks including uncertainty over the ongoing Covid-19 pandemic which has no end in sight. Persistence of the pandemic could further contract the global economy bringing serious implications on the domestic economy through low international commodity prices, low investment, exports and remittances, as well as tourism opportunities.
The 2021 National Budget will be guided by the NDS1: 2021-25, which will be launched this month.
“The main messages from the NDS consultations is on repositioning the economy towards a sustainable growth path critical for reducing poverty and growing per capita incomes. “Based on the NDS pillars, the 2021 Budget will focus on fewer areas which include the following: Inclusive Growth and Macro-stability; Developing and Supporting Productive Value Chains; Optimising Value in our Natural Resources; Infrastructure, ICTs and Digital Economy; Human Capital Development and Well-being; Effective Institution Building & Governance; and Engagement and Re-engagement.”
Fiscal policy will remain an anchor for stabilisation, guided by the principle of living within means and the budget. Treasury will aim to contain the largest expenditure outlay — the wage bill — by keeping employment costs below 50 percent of total expenditure.
“Therefore, prudent fiscal management will be at the centre of the 2021 interventions and this will entail continued expenditure containment measures targeting avoidance of non-essential spending, decisive reforms on targeting subsidies to allow deployment of resources for developmental programmes such as infrastructure and social spending needs.
“Capital development expenditures will be targeted at least 4,5 percent of GDP annually.”
The budget will seek to stimulate domestic production through strengthening value chains and exploiting knowledge from tertiary institutions. On agriculture, Government will initiate debate around the introduction of GMOs with a view of assessing the merits and demerits of introducing the technology locally.
“The impact of climatic change and reliance on old agricultural methods over the years requires us to revisit our technologies with a view of enhancing production and productivity,” reads the strategy paper.
“This include the necessity of adopting modern alternative technologies including tissue culture as well as further assessments of GMOs, through vigorous debate that examine the merits and demerits of genetic engineering.
“Furthermore, Government is promoting precision agriculture that uses information technology to ensure that crops and soil receive optimum health and productivity, that way guaranteeing profitability, sustainability and protection of the environment.”
Growth of the agriculture sector will be anchored on favourable weather forecasts, timely financing, mechanisation and better capacitation of farmers through extension services and training.
“However, this growth target of 11,3 percent is on the lower side than the sector policy targets. Successful implementation of sector’s policy strategy will result in higher agriculture output for the next three years with positive impact on GDP.
“Government has already started engaging private financial institutions to extend their financial support towards commercial farmers building from arrangements undertaken in 2019/20 agriculture season.
“It is expected that the process will be smooth this year to enable farmers to access inputs on time. Success of this initiative should be able to guarantee food security of the country as the financial sector supports productive farmers.”