Econ­omy set for re­bound

The Sunday Mail (Zimbabwe) - - FRONT PAGE -

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.”

— Pic­ture: Tawanda Mudimu

Pres­i­dent Mnan­gagwa con­grat­u­lates newly sworn-in Zim­babwe Me­dia Com­mis­sion chair­per­son Pro­fes­sor Ruby Magosvongw­e at State House in Harare on Thurs­day.

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