‘Arrears remain a major challenge’

Source: ‘Arrears remain a major challenge’ | Theindependent (Zimbabwe)

AS the country strives to grow the economy by 7,4% in 2021, Zimbabwe Independent (ZI) caught up with Finance and Economic Development minister Mthuli Ncube (MN) to discuss several issues including the new economic blue-print, the National Development Strategy 1, inflation, Covid-19 impact, the interbank auction system, economic recovery and growth plans.

Below is Part 1 of the interview, which was published in the Zimbabwe Independent Special Report launched this month. Go to  http://bit.ly/3luBG8K to subscribe to the indepth report, which is an extensive compilation of forecasts from top economists, financial analysts, legal experts and social scientists for the Economic Year 2021.

ZI: We have a bigger surplus for 2020, congratulations. What is the government doing to close the gap in terms of average income and cost of goods and services?

MN: Government, through implementation of the Transitional Stabilisation Programme (TSP) has delivered budget surpluses in 2019 and 2020, managed to stabilise the local currency and expeditiously rolled out the devolution policy, among other structural issues. In order to close the gap between average incomes and the cost of goods and services, a number of initiatives have been taken aboard. These includes among others:

Provision of grants in the form of cash transfers for vulnerable groups over and above the elderly and child headed families. These are now pegged at ZW$1 500 (US$17,88) from a previous ZW$800 (US$9,53) per month.

Provision of relief for the members of the informal sector affected by Covid-19 lockdown to the tune of ZW$89 million (US$1,06 million).

A call has been made by Government to upscale informal sector registrations and formalisation of operations to be captured in the national database for them to benefit from further Government initiatives

Government on its side has been reviewing the wages and salaries of its employees such as the introduction of the US$75 per month Covid-19 allowances for civil servants since June 2020. Civil servants have already received substantial salary reviews since the beginning of 2020.

In addition, Treasury has availed technical and financial resources for the establishment of a Government Employees Mutual Savings Fund (GEMS), which is aimed at providing soft loans to government employees as well as acting as a savings vehicle, which enables long term capital accumulation by civil servants. This is part of a broader, non-cash remuneration strategy adopted by the government, which seeks to enhance the remuneration structure through substantial non cash benefits, which lessen the direct burden on the fiscus. These initiatives include a civil service housing scheme as well as the public service pension fund.

Implementation of the Food Deficit Mitigation Programme to assist vulnerable families to access food. About 6,8 million tonnes have since been distributed since the beginning of 2020 and 51 557 urban households had received a cumulative of ZW$30million (US$357 611) in October and November 2020 under the cash for cereals programme.

On the cost of goods and services, the major driver has been volatility in the exchange rate. Government, through the Reserve Bank of Zimbabwe, introduced the Foreign Currency Auction System in June 2020 and took measures to deal with indiscipline among economic agents; particularly the mobile money firms, which measures have restored sanity and integrity in the financial service sector. These measures have managed to stabilise the exchange rate at around US$1:ZWL$82 from July 2020 to February 2021, while  the parallel market exchange rate premium, which had risen to more than 300% before the auction was introduced has since fallen to less than 30%.

As a direct result of stability of the exchange rate, there has been significant concomitant slow-down in annual inflation which has declined from 837% in July 2020 to 365% in January 2021, while month-on-month inflation has fallen from 35% to around 5% over the same period.

ZI: Incomes have been grossly eroded due to currency weakness since liberalisation and austerity, the average is at least 30% of dollarisation levels. This disparity makes Zimbabweans and the rest of the economy worse off. How are you addressing the challenges?

MN: The cost of adjustment has been borne by the entire economy with the result that competitiveness has been restored. Where the burden of adjustment has been disproportionately tilted towards the more vulnerable members of the economy as a result of readjusting the economy, government has intervened through a variety of social protection programmes.

Focus now is on growth of the economy through various interventions including providing assistance to exporting companies as well as increasing national production in agriculture, mining, tourism and manufacturing among others. For instance in agriculture, the 2021 National Budget targets to increase agriculture output, with emphasis on timely financing of agriculture, climate change mitigation, guaranteeing viability and competitiveness of farming business at the same time protecting the environment through the adoption of sustainable agriculture practices.

ZI: Parastatal reform is a key pillar for economic transformation. After four years no substantial reforms have been put in place. What is stalling the process and at what cost?

MN: Government affirmed its commitment to institute comprehensive SEPs reforms through the approval of the State Enterprises Reform Framework on the 10th of April 2018, which policy position has been a key focus area in the Transitional Stabilisation Policy (TSP), and the National Development Strategy 1. To date, significant progress has been realised in the implementation of the SEPs Reforms Programme, and this includes:

Completion of the unbundling of the Grain Marketing Board (GMB) and establishment of Silo Foods (Pvt) Ltd as well as Civil Aviation Authority of Zimbabwe (Caaz) into the Civil Aviation Authority of Zimbabwe and the Airports Company, which are now fully operational. The restructuring of Air Zimbabwe is almost complete, whilst the re-bundling of Zesa is expected to be completed by mid-year. The procurement and/or engagement of transactional advisors for Allied Timbers, Agribank, Small and Medium Enterprises Development Corporation (SMEDCO), Infrastructure Development Bank of Zimbabwe (IDBZ), Scientific and Industrial Research and Development Centre, Zupco, and Zimbabwe National Roads Administration (Zinara) are well underway.

Cabinet approved the merger of Petrotrade and Genesis, a subsidiary of the National Oil Company (Noic) into fuel retailing business which will incorporate CMED Fuels. Thereafter, the consolidated entity is to be privatised through strategic partnership with an established major player in the petroleum sector.

Furthermore, Government has finalised approval processes for the transformation of Agribank into a Land Bank and implementation is now under way.

A new recapitalisation strategy is being worked on, after the cancellation of the NRZ-Transnet/DIDG Consortium recapitalisation deal. In the same vein, Cold Storage Company was placed under Judicial Management after the cancellation of the Bousted deal.

The privatisation of Chemplex Holdings, Willowvale Mazda Industries (WMI), Deven Engineering, POSB as well as Zimbabwe Mining Development Corporation (ZMDC) specific projects, is under way.

The Zimbabwe Investment and Development Agency (Zida) is now fully functional.

Liquidation of Kingstons subsidiaries is under way.

On TelOne and NetOne, Government made a decision to offer the two entities as single package and is also considering their partial privatisation.

Recommendations from the Review of the SEPs Ownership Model in Zimbabwe are now awaiting Cabinet decision.

SEP reforms need careful judgement and decisions should not be rushed so as to protect public assets and to realise maximum value from any disposals or reorganisations. Due care must be taken at all times.

ZI: Debt clearance is critical for economic transformation. The new dispensation has been reluctant to come up with effective ways to clear the debt. The cost is clear as the country lacks developmental funding and industry cannot access long term credit for retooling. What is the country’s strategy for reformation?

MN: Arrears remain a major challenge to the economy, making up over 77% of total external debt. Therefore, re-engagement and engagement with the international community for arrears clearance and debt relief remains a critical strategy of our National Development Strategy (NDS) 1 as this will unlock new external financing required for sustained economic growth and transformation. Government’s strategy is as follows:

Prioritisation of token payments to multilateral development banks (MDBs) and payments to creditors with positive net inflows;

Focus on concessional external financing;

Limiting non-concessional borrowing to economically viable projects; and

Continued engagements with the International Financial Institutions (IFIs) and bilateral creditors for a comprehensive arrears clearance and debt relief programme, post the implementation of a reform agenda under an International Monetary Fund (IMF) Staff Monitored Programme (SMP).  The Government has already made significant progress in stabilising the economy through the various economic reforms implemented under the Transitional Stabilisation Programme (TSP).  The implementation of these critical reforms will be further strengthened during the NDS1 period.

ZI: The 2021 budget was prepared before the second wave of the Covid-19 pandemic that has prompted the tightening of restrictions. Are you going to revise the GDP projections or alter the budget to reflect the current realities?

MN: There are always upside and downside risks to any projections and in the event the risks do materialise, their aggregate effect may be negative, positive or neutral at a macro-fiscal level. At the moment, it is too early to make such a call.

ZI: With the second wave having a devastating impact, what measures are you putting in place in terms of providing safety nets to business and vulnerable communities?

MN: Government has already indicated its strong commitment to a social protection framework which includes direct income support through cash transfers, social safety nets including school fees as well as providing for protection of workers and their dependants against risks that threaten jobs and income security.

ZI: Are you going to put in place another bailout package for businesses affected by the impact of Covid-19?

MN: Government has already set aside financial resources for the purchase of Covid-19 vaccines for all Zimbabweans, which translates to a reprieve to business. Another bailout package will be dependent on the extent to which the second wave affects businesses.

ZI: There have been complaints by the business sector that they did not benefit from the ZW$18 billion (US$214 million) package put in place soon after the advent of the Covid-19 pandemic in March last year. How many companies benefitted?

MN: The Stimulus Package was a demand driven facility meant to cushion the vulnerable members of society, strengthen the health response and support all deserving businesses. To date, more than ZW$30 billion (US$357 million) has been disbursed towards the health sector for medical supplies and allowances, agriculture support initiative, cash transfers, support for youth, sport and artists as well as SMEs.

ZI: How are you addressing these complaints and what have been the bottlenecks in distributing these funds to businesses?

MN: As alluded to above, the Stimulus Package was a demand driven facility, accessible through a well-defined structure. Resources are not just being distributed willy-nilly but through banks that would verify needs and eliminate speculators through a stringent process of assessing eligibility which all applicants should conform. This process was designed to protect public funds from abuse and plunder under guise of Covid.

ZI: The lockdown will have an impact on your ability to collect revenue. How do you intend to fund the deficit created by the tax collection exercise which is likely to be inadequate?

MN: A comprehensive review of the impact of the lockdowns on revenue is necessary before such a conclusion is drawn. Formal businesses which are the major contributors to revenue are currently operating, albeit at reduced levels. The informal sector contributes less than 1% of total revenue. Other key sectors such as manufacturing, mining and agriculture are fully operational and are the major tax contributors.

Revenue flows from these sectors may not be greatly affected. On the positive side, demand for airtime and data usage as well as mobile transactions have increased dramatically thereby increasing potential for revenue from these.  Tourism remains subdued but business should resume as soon as lockdown measures are eased.

ZI: Can you quantify the loss the country has suffered as a result of the Covid-19 pandemic?

MN: If you may recall in the 2020 National Budget, we anticipated a 3% economic growth. This, however, did not take into consideration the Covid-19 induced lockdown. Our estimate now is pointing towards a contraction of 4,1% for 2020. The gap between the initial forecast and the recent forecast can to some extent give an indication of the economic impact of Covid-19.

However, this has to be taken with great caution, as there were other factors at play, such as the drought, and after-effects of the cyclone Idai of 2019. More so, as Government we also intervened to lessen the impact of Covid-19.

ZI: How much has the government set aside for Covid vaccines?

MN: US$100 million has been allocated for Covid-19 Vaccines by Government.

ZI: When is the country likely to receive the shipments of the vaccines?

MN: vaccines have started arriving in the country with the first batch being a donation from China which arrived on Monday, 15 February 2021. We expect the additional batches by end of March 2021.

ZI: Of the vaccines coming into the country, how many are donations and from who?

MN: We are still engaging various development partners, bilateral and multilateral institutions to determine how they can assist the country in ensuring the wide availability of vaccines. So far, the country has received 200 000 vaccine doses from Sinopharm donated by China, which arrived on Monday, 15 February 2021. The Chinese Government has also donated a second batch of 200 000 Sinopharm Covid-19 vaccines to Zimbabwe and this will increase the China’s donation to 400 000 doses.

India has committed to donate about additional 75 000 doses to Zimbabwe, while the World Bank through the Health Emergency and Preparedness Trust Fund has pledged US$5 million targeted at funding support for vaccine deployment under the Covid-19 Vaccine Strategy.

The country is also finalising discussions with the Russian Government’s Sputnik vaccines and from United Kingdom. Under the COVAX programme, 1,152 million vaccine doses have been pledged to the country. Government is also initiating procurement processes for 3,8 million doses from China, whilst a further 5 million doses will be secured through a facility being put together by the African Union.

ZI: We have had abundant rains this year. Do these offer prospects of economic recovery? What is the agricultural outlook for this year?

MN: The agriculture season is very promising, given that we are coming from two successive years of droughts. Current assessments done by the Ministry of Agriculture are showing that most of the crops are in good and fair condition. Preliminary indications are that about 1,58 million hectares are under maize, 107 558 ha under tobacco, and 218 603 ha under Cotton. The area planted so far exceeds last year’s performance.

With the good rainfall season coupled with Government intervention programmes such as the Pfumvudza Conservation Scheme, Presidential Input Scheme, National Enhanced Crop Productivity Scheme (Smart Agriculture), the Livestock Growth Plan and Farm Mechanisation Programme, we anticipate better yields and output.  With the developments so far, the 11,3% agriculture growth rate initially forecasted is likely to be surpassed.

ZI: What impact are the floods on the agricultural production?

MN: The full impact of heavy rains on agriculture will be assessed after the first round crop assessment, which the Ministry of Agriculture is currently seized with.

However, there are positives that can be drawn from the relatively high rainfall. On the livestock side, the heavy rains have brought relief in terms of improvement of pastures, which had deteriorated during the last season.  On the irrigation side, there is much to celebrate most major dams are almost full and some are spilling over.

ZI: The economy has embraced the US dollar as a medium of exchange. To what extent has that policy resulted in stability for the Zimbabwean dollar and how has this helped fight inflation?

MN: Whilst the Zimbabwean dollar remains the main currency of trade as well as accounting in the economy, the Government allowed the use of free funds in the economy as part of measures to alleviate the effects of Covid-19 pandemic on the economy. This policy has helped to channel foreign currency from the informal to the formal sector as evidenced by a phenomenal increase in FCA nostro balances to current levels of over US$1,2 billion.

The development has assisted in reducing demand for foreign currency by formal entities that now partly rely on their foreign currency takings to finance their import requirements and to finance their domestic investments.

Consequently, pressure on foreign currency demand has been reduced, thus, helping to stabilise the exchange rate and in the process limiting its pass through to inflation. Moreover, the resultant increase in domestic nostro balances in the banking sector has improved USD liquidity and helped to sustain financing of the auction through the 20% domestic nostro surrender requirement.

ZI: The majority of Zimbabweans are in the informal sector, what plans are there for their inclusion in the country’s economic growth?

MN: We are aware of the significance of the informal sector and its potential as a source of livelihoods for the greater section of the population. The potential contribution of the informal sector to fiscal revenue and national income can therefore not be under-estimated. As specified in NDS1, Government is working towards ensuring that operating sites and structures for SMEs and informal sector players are identified and developed. Tapping into this potential revenue source requires strategies, which include taxpayer education and awareness campaigns. In addition, our Zimbabwe Revenue Authority will establish a Specialised Unit to ensure that the sector’s contribution to fiscal revenue is commensurate with the level of economic activity.

ZI: The foreign currency auction market has been credited with bringing stability in the prices of goods but some argue that this will be undone by the recent increase in the various tariffs you announced in the 2021 budget. What is your view on this?

MN: The increase in tariffs and service fees is a necessity as some of the prices were now sub economic to the extent that they could not guarantee quality service delivery. However, the impact on general prices should only be of a short term nature and should not have any consequences for the general price level.

ZI: Can you quantify the loss the country has suffered as a result of the Covid-19 pandemic?

MN: If you may recall in the 2020 National Budget, we anticipated a 3% economic growth. This, however, did not take into consideration the Covid-19 induced lockdown. Our estimate now is pointing towards a contraction of 4,1% for 2020. The gap between the initial forecast and the recent forecast can to some extent give an indication of the economic impact of Covid-19.

However, this has to be taken with great caution, as there were other factors at play, such as the drought, and after-effects of the cyclone Idai of 2019. More so, as Government we also intervened to lessen the impact of Covid-19.

ZI: How much has the government set aside for Covid vaccines?

MN: US$100 million has been allocated for Covid-19 Vaccines by Government.

ZI: When is the country likely to receive the shipments of the vaccines?

MN: Vaccines have started arriving in the country with the first batch being a donation from China which arrived on Monday, 15 February 2021. We expect the additional batches by end of March 2021.

ZI: Of the vaccines coming into the country, how many are donations and from who?

MN: We are still engaging various development partners, bilateral and multilateral institutions to determine how they can assist the country in ensuring the wide availability of vaccines. So far, the country has received 200 000 vaccine doses from Sinopharm donated by China, which arrived on Monday, 15 February 2021. The Chinese Government has also donated a second batch of 200 000 Sinopharm Covid-19 vaccines to Zimbabwe and this will increase the China’s donation to 400 000 doses.

India has committed to donate about additional 75 000 doses to Zimbabwe, while the World Bank through the Health Emergency and Preparedness Trust Fund has pledged US$5 million targeted at funding support for vaccine deployment under the Covid-19 Vaccine Strategy.

The country is also finalising discussions with the Russian Government’s Sputnik vaccines and from United Kingdom. Under the COVAX programme, 1,152 million vaccine doses have been pledged to the country. Government is also initiating procurement processes for 3,8 million doses from China, whilst a further 5 million doses will be secured through a facility being put together by the African Union.

ZI: We have had abundant rains this year. Do these offer prospects of economic recovery? What is the agricultural outlook for this year?

MN: The agriculture season is very promising, given that we are coming from two successive years of droughts. Current assessments done by the Ministry of Agriculture are showing that most of the crops are in good and fair condition. Preliminary indications are that about 1,58 million hectares are under maize, 107 558 ha under tobacco, and 218 603 ha under Cotton. The area planted so far exceeds last year’s performance.

With the good rainfall season coupled with Government intervention programmes such as the Pfumvudza Conservation Scheme, Presidential Input Scheme, National Enhanced Crop Productivity Scheme (Smart Agriculture), the Livestock Growth Plan and Farm Mechanisation Programme, we anticipate better yields and output.  With the developments so far, the 11,3% agriculture growth rate initially forecasted is likely to be surpassed.

ZI: What impact are the floods on the agricultural production?

MN: The full impact of heavy rains on agriculture will be assessed after the first round crop assessment, which the Ministry of Agriculture is currently seized with.

However, there are positives that can be drawn from the relatively high rainfall. On the livestock side, the heavy rains have brought relief in terms of improvement of pastures, which had deteriorated during the last season.  On the irrigation side, there is much to celebrate most major dams are almost full and some are spilling over.

ZI: The economy has embraced the US dollar as a medium of exchange. To what extent has that policy resulted in stability for the Zimbabwean dollar and how has this helped fight inflation?

MN: Whilst the Zimbabwean dollar remains the main currency of trade as well as accounting in the economy, the Government allowed the use of free funds in the economy as part of measures to alleviate the effects of Covid-19 pandemic on the economy. This policy has helped to channel foreign currency from the informal to the formal sector as evidenced by a phenomenal increase in FCA nostro balances to current levels of over US$1,2 billion. The development has assisted in reducing demand for foreign currency by formal entities that now partly rely on their foreign currency takings to finance their import requirements and to finance their domestic investments.

Consequently, pressure on foreign currency demand has been reduced, thus, helping to stabilise the exchange rate and in the process limiting its pass through to inflation. Moreover, the resultant increase in domestic nostro balances in the banking sector has improved USD liquidity and helped to sustain financing of the auction through the 20% domestic nostro surrender requirement.

ZI: The majority of Zimbabweans are in the informal sector, what plans are there for their inclusion in the country’s economic growth?

MN: We are aware of the significance of the informal sector and its potential as a source of livelihoods for the greater section of the population. The potential contribution of the informal sector to fiscal revenue and national income can therefore not be under-estimated.

As specified in NDS1, Government is working towards ensuring that operating sites and structures for SMEs and informal sector players are identified and developed. Tapping into this potential revenue source requires strategies, which include taxpayer education and awareness campaigns. In addition, our Zimbabwe Revenue Authority will establish a Specialised Unit to ensure that the sector’s contribution to fiscal revenue is commensurate with the level of economic activity.

ZI: The foreign currency auction market has been credited with bringing stability in the prices of goods but some argue that this will be undone by the recent increase in the various tariffs you announced in the 2021 budget. What is your view on this?

MN: The increase in tariffs and service fees is a necessity as some of the prices were now sub economic to the extent that they could not guarantee quality service delivery. However, the impact on general prices should only be of a short term nature and should not have any consequences for the general price level.

The post ‘Arrears remain a major challenge’ appeared first on The Zimbabwe Independent.

COMMENTS

WORDPRESS: 0