Fiscal reforms: Politics elephant in the room - Zimbabwe Situation

Fiscal reforms: Politics elephant in the room

Fiscal reforms: Politics elephant in the room

Source: Fiscal reforms: Politics elephant in the room | Theindependent (Zimbabwe)

REVELATIONS by Finance minister Mthuli Ncube last week that he is working on an economic stabilisation programme as part of efforts to resuscitate the economy, but faces political challenges, speaks to the hurdles he faces in carrying out his task.

By Kudzai Kuwaza

In an interview with Bloomberg Television, Ncube said the country needs a stabilisation plan to be implemented within the short-term to stabilise and ease the current macro-economic pressures that have deepened the country’s economic crisis.

The interview comes at a time the economy is buffeted by a debilitating liquidity crunch, a foreign exchange shortage, widening fiscal and trade deficits, mass unemployment and low industrial output among other challenges.

Ncube also spoke of a “fiscal shock” needed to kick-start the economy.

“My preference is a fiscal shock, but there is what you call the political collar or the politics of policymaking which then slows you down. My preference would be more of a big-bang approach because every day counts in terms of cost,” Ncube, a former chief economist and vice-president of the African Development Bank, said in a briefing with journalists on the sidelines of an investor conference in New York on Friday last week A fiscal policy shock is an unexpected change in government spending or tax levels. This is something he will need to do particularly as the fiscal deficit hovers around US$2 billion.

Among the austerity measures he would need to carry out is reducing the wage bill which gobbles up more than 90% of revenue through downsizing the number of civil servants, reducing the number of foreign embassies, cutting down the number of foreign trips as well as weaning off the fiscus a lot of parastatals which have become a cesspool of mismanagement and corruption, through closing some of them and privatising others.

Ncube’s acknowledgement that the pace of his planned reform depends on what he called the “political collar” is instructive, analysts say. When he was appointed Finance minister, Ncube spoke of a three-pronged approach to help right size the economy. These were the eradication of bond notes, dollarisation and joining the Rand Monetary Area.

To give him a soft-landing, fiscal and monetary authorities told him that his three proposals on currency reform — dollarisation, joining the Rand Monetary Area, Common Monetary Area or the Multilateral Monetary Area (MMA) or re-introducing the Zimbabwean dollar — were dead in the water.

Ncube is now in a catch-22 situation. To restore fiscal stability and credibility, he needs to stop the quasi-currency instruments which government is surviving on.

Should he rein in government’s quasi-currency instruments, the administration will either be paralysed or run into serious problems as it may not even be able to pay salaries. His predecessor at Treasury, Patrick Chinamasa, could probably author a book on the subject of having a political collar to slow down the pace of any drastic reforms that would need to be implemented.

In April 2015, he announced that government had suspended bonuses for 2015 and 2016 to cut down on costs, but then former president Robert Mugabe dismissed Chinamasa’s announcement, saying that the presidium had not been consulted and bonuses are a right for civil servants.

Chinamasa was to experience more frustration a year later after he proposed a raft of reforms in his mid-term fiscal policy last year which included cutting the salaries of cabinet ministers, closing some embassies and retrenching civil servants. Cabinet threw out his proposals.

Desperate for political survival, the government has been reluctant to trim the civil service workforce. Chinamasa revealed in successive budget statements plans to privatise the state-owned enterprises which have bled the fiscus through mismanagement and corruption.

The parastatals earmarked for restructuring include the Agricultural and Rural Development Authority, Cold Storage Company, Grain Marketing Board, Air Zimbabwe, TelOne, Civil Aviation Authority of Zimbabwe, National Railways of Zimbabwe, Industrial Development Corporation of Zimbabwe, Zimbabwe National Water Authority and Zimbabwe Power Company.

However, due to the proverbial political collar, these plans have gathered dust with no implementation of the restructuring process.

Economist John Robertson said Ncube will probably focus more on growing the cake rather than drastically scaling down the number of civil servants due to the political ramifications such a move will entail.

“Well, when he talks about the political collar, I think that he is saying that he cannot retrench 100 000 civil servants,” Robertson said. “This means that he has to encourage the growth of the business sector and this is going to be the hard part. The government should be putting in measures to ensure the ease of doing business. They have been promising to do so but they have not done it yet.”

Robertson said reviving the agricultural sector will be pivotal through bringing back commercial farmers on the land and making the land bankable. He said the revival of the agricultural sector would ensure that the country starts producing some of the products that are currently being imported, widening the trade deficit.

Economist and chairperson of the CEO Africa Roundtable Oswell Binha said President Emmerson Mnangagwa should give Ncube and the recently appointed Finance permanent secretary George Guvamatanga the leeway to take measures to breathe life into the comatose economy.

“The president in his wisdom to appoint the two must give them unfettered support if they are to instill fiscal discipline in the country,” Binha said. “I have no doubt that the two have the capacity needed to ensure the instilling of the needed fiscal discipline.”

He said Mnangagwa has tried to separate party and government business as evidenced by the appointment of technocrats such as Ncube and his move to retire senior members of Zanu PF from government business so that they focus on party affairs.
Among other tasks, Binha said Ncube must separate government business from that of the ruling party, get buy-in from the private sector and recalibrate the role of the Reserve Bank of Zimbabwe in the economy..

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