Zim’s economy on the road to recovery?
BY VINCE MUSEWE
THE above question needs to be questioned. Opinion differs among the various stakeholders. However, one thing is certain is that the high expectations set by President Emmerson Mnangagwa upon his inauguration in 2018 have not been fully met.
A significant number of citizens feel aggrieved because they expected a more inclusive government after the former president, the late Robert Mugabe, and greater political tolerance of opposing views. The violence committed in 2019 against citizens by the army and police did not improve the situation, including the widespread incarceration of opposition party officials, leading activists and journalists.
Second, the economy did not perform as expected due to internal and exogenous factors which limited the prospects for recovery.
During the period 2018 to 2020, high inflation continued to decrease the purchasing power of disposable income and Zimbabwe saw disgruntled public officials (teachers, doctors and nurses) continue to fight for better incomes while those the informal sector are struggling to make ends meet.
In October 2018, the Minister of Finance, Mthuli Ncube, launched the Transitional Stabilization Program (PST) to stabilize the economy by addressing governance, macroeconomic stability and re-engagement, inclusive growth, infrastructure and services public and the development of social or human capital. The PST took place from October 2018 to December 2020, followed by national development strategies, the first (NDS1) running from 2021 to 2025.
The PST focused on stabilizing the macroeconomy and financial sector, introducing the necessary political and institutional reforms, transforming into a private sector led economy, addressing infrastructure gaps and launching quick fixes to boost growth.
During the period 2018 to 2020, Zimbabwe managed to achieve mixed results, the most important being achieving a budget surplus for the first time in many years after an extended period of up to 40% deficit fiscal, broadening the tax base, increasing infrastructure spending, somewhat stabilizing the US dollar exchange rate through the establishment of a formal currency auction system, a key factor in managing inflationary pressures, achieving a trade surplus through the increase in locally produced goods by land compensation issue for white farmers subject to the availability of international donors.
The TSP, however, has failed to reform institutions, especially the privatization of state-owned enterprises, the creation of new formal jobs, the increase in foreign direct investment flows (critical for the increase in productive capacity of the economy), the inability to cope with the albatross of external debt resulting in a new engagement with external creditors for the purpose of resolving the external debt distress, including the clearance of arrears and a lackluster approach to fight corruption and stop revenue leaks.
The Covid-19 pandemic has exacerbated Zimbabwe’s problems, particularly in the health, public transport, education and social services sectors, exposing inherent vulnerabilities in the economy due to lack of investments in these areas for many years.
It also resulted in an estimated 10% GDP contraction while inflation soared to 622.85% in 2020 from 226.9% in 2019. Before the pandemic, the economy was in recession, contracting by 6%. in 2019. This was due to instability and runaway inflation caused primarily by a volatile US dollar exchange rate, which was fueled by informal currency trading, the removal of fuel price subsidies and electricity and the increase in the money supply due to excessive domestic public borrowing.
There are conflicting views on whether Zimbabwe was indeed put on a sound economic footing by the TSP. Prominent economist Eddie Cross is on the optimistic side with politicians and Finance Minister Mthuli Ncube.
Cross is right that after Mugabe Zimbabwe did not inherit any savings base, an underperforming agricultural sector, a high import bill for essential goods, a flight of brains, failing state institutions, a budget deficit, an overvalued currency, high subsidies, dilapidated infrastructure and international isolation. And it is true that some of these issues have gained attention, leading to significant improvements in agricultural production, a reduction in imports, a budget surplus due to better budget management, the removal of subsidies albeit inflationary and an increase infrastructure spending.
However others, these being independent economists, part of the business sector, academics and working people argue that there has been no fundamental social impact on the lives of ordinary citizens whose disposable incomes continue to decline.
A majority of Zimbabweans are self-employed in the informal sector and, despite their estimated 70% contribution to gross domestic product; they remain marginalized in a survival economy and suffer from a lack of provision of basic services such as clean water, access to medicines, decent housing, quality education and access to public transport services .
Added to this is the deterioration of both public and social infrastructure, which has a negative impact on the quality of life, especially in urban areas. There have also been no tangible improvements in the ease and cost of doing business due to regular government interventions on trade, monetary and tariff policies, the failure to reform major state-owned enterprises and a generally unattractive investment environment.
In summary, while macroeconomic indicators may look promising, microeconomic indicators do not reflect the optimism expressed by political leaders. The madness is due to the measurement of macroeconomic indicators in the formal economy from which data is collected while the majority of the population operates and survives outside, in the informal sector which is neither regulated nor unregulated. has reliable sources for collecting economic information. The data.
Zimbabwe’s economic outlook for 2021 is not very promising for the recovery. Although the agricultural sector is expected to perform well due to exceptional rainfall and increased investment in this sector, the economy will be negatively affected by a number of factors, including poor management of the economic impact of the pandemic of Covid-19, moderate productivity in the mining sector. private sector, inconsistent government policy, inability to fight corruption, incessant revenue leakage especially from the mining sector, over-indebtedness and arrears, low international reserves and above all, political instability and slowness of promised political reforms.
Funding for future economic growth will be of critical importance. According to the African Development Bank’s Economic Outlook 2021 report, Zimbabwe has been in default since 2000 with a total public debt of US $ 11.1 billion (53.9% of GDP) and 96% of that. debt is external and includes US $ 6. , 4 billion in arrears to international financial institutions, bilateral and private creditors.
Attempts to solve the debt arrears conundrum failed in September 2019, leaving the country barred from any further inflows of loans, including private sector access to offshore credit facilities.
The country therefore continued to rely on national borrowing sources and on non-members of the Parisian club such as Afreximbank, which continued to provide its support, and China since no international financial institution will resume its loans so much. that the arrears will not be cleared. The question of the need for debt transparency remains relevant.
In August 2020, Zimbabwe launched the National Development Strategy (NDS1) which is expected to run for the period 2021 to 2025.
However, Zimbabwe has had a total of 20 economic plans since independence in 1980, all well articulated, but the failure to develop the capacities to effectively implement, monitor and measure progress and political interference has resulted in a lack of tangible development.
There are certainly two accounts as to whether Zimbabwe is on the road to recovery. Politicians and their supporters are peddling the narrative that things are getting a lot better while opposition, unions and academics believe this is a fallacy for political gain and that there is no had no visible fundamental change by the post Mugabe government.
In fact, some even argue that things have gotten worse, especially with regard to freedom of expression and association, including human rights.
Economically, as long as disposable incomes continue to decline, new investment is low, and there is no fundamental restructuring of the economy, the economy cannot be expected to continue. Zimbabwe is reaching its full potential so soon.
Musewe is a freelance economist and author. These weekly New Perspectives articles are coordinated by Lovemore Kadenge, independent consultant, former president of the Zimbabwe Economics Society and former president of the Institute of Chartered Secretaries & Administrators in Zimbabwe. E-mail: [email protected] and mobile: +263 772 382 852