Zim economy reaches dead end

Source: Zim economy reaches dead end – DailyNews Live

John Kachembere and Ndakaziva Majaka      1 February 2017

HARARE – A fragile political situation that could prove catastrophic –
gross domestic product (GDP) growth of less than one percent, a
notoriously high unemployment rate, widening inequality and the industrial
failings of a commodity-driven growth model – not a pretty picture of an
economy. Yet this is what Zimbabwe is faced with.

Economic analysts said the country’s economy is headed for an implosion if
President Robert Mugabe, who turns 93 in February, does not solve the
succession issue which is tearing his Zanu PF party into pieces.

Cato Institute senior fellow Steve Hanke – who correctly predicted the
demise of the Zimbabwean dollar in 2008 – said the ailing nonagenarian
leader’s populist and Marxist economic policies had failed and were
destroying Zimbabwe’s economy.

“Zimbabwe government is so incompetent that it has broken Real Time Gross
Settlement (RTGS) system, causing huge premium on United States dollars
cash.  Zimbabwe economy collapse,” he said on Twitter.

Hanke, who has been involved with the government and currency reforms of a
dozen different countries around the world, and in 2007 developed a
hyperinflation index for Zimbabwe, said Mugabe’s policies resulted in 71
percent decline in cotton production and 50 percent in apple production.

Former Economic Planning minister Tapiwa Mashakada concurred with Hanke
and said government’s penchant for lavish spending was effectively
collapsing the country’s fiscal and monetary systems.

“Between 2009 and 2013, government ran a cash budget and balanced its
books. By the end of 2013, the budget deficit only crept to $50 million.
Between 2013 and 2016 the budget deficit rose to $1,2 billion.

“Fiscal prudence was thrown out of the window and government recurrent
expenditure rose dramatically. Yet revenue performance declined over this
period from $4 billion per annum to $3,6 billion by end of 2016.
Expenditure ballooned from $3,8 billion to $4,8 billion.

“The unexplained increase in employment costs did not help the situation.
Clearly, without fiscal balance there is no macroeconomic balance. The
fiscal deficit has sparked a deep fiscal crisis in Zimbabwe,” the MDC
legislator said.

Mashakada also said government’s issuance of Treasury Bills (TBs) was now
out of hand, urging treasury to shut down the provision.

“All in all, the financial sector was abused by the issuance of TBs. In
2016 alone, it is thought that government issued TBs in the amount of $4
billion.

“The majority of these TBs have not been redeemed.  Pension funds, mutual
funds and building societies were badly exposed to these TBs. To this day,
one of the building societies has not recovered from the exposure,” he
said.

The former minister also said the country’s political environment was
hampering economic growth.

“At present, our politics is toxic and it affects economic recovery… it
is my humble opinion that Zimbabwe has great potential to balance the
uneasy triangle of fiscal, monetary and external sector balance provided
we adopt growth- oriented policies under a peaceful, orderly and
democratic political environment,” said Mashakada.

The International Monetary Fund (IMF) recently urged Mugabe’s Zanu PF-led
government to undertake bold reforms that include streamlining of the
public sector wages to ensure the viability of the economy.

“The authorities need to take action to streamline public sector wages
urgently,” IMF deputy spokesperson William Murray said.

“They also are encouraged to accelerate public enterprise reform, improve
public financial management, develop key infrastructure and to strengthen
the rule of law and to improve governance,” he said.

Renowned economist and former University of Zimbabwe lecturer, Tony
Hawkins last week said the country needed an economic overhaul to correct
economic imbalances and stimulate growth.

“The country has got a lot of imbalances ranging from unsustainable debt
burden – increasingly domestic, unsustainable budget and
balance-of-payments deficits, excessive reliance on foreign capital…

“The list is just endless and also includes unmanageable levels of poverty
and unemployment exacerbated by job market mismatches, huge, growing
infrastructure deficit, institutional decay – partly attributable to
politicisation,” the economics guru said at a Confederation of Zimbabwe
Industries roundtable meeting.

Hawkins pointed out that government also needed to “put its house in order
to avoid total collapse”.

Another economist, Ashok Chakravarti, told delegates at the same event
that Zimbabwe’s immediate solution was adoption of the South African rand.

“We need to adopt the rand immediately to solve the present pressing cash
crisis. However, this alone is not enough. There is also need to balance
budget and address high government wage bill.

“Yes, attempts to this have been there, but with wrong approaches. Before
the wage bill can be rationalised, there is need for stakeholder dialogue
and social contract as recommended by parliamentary portfolio committee on
finance.

“The size of civil service must be cut, allowances trimmed, 13th cheque
cancelled, and parastatals privatised,” he said, adding the country’s
Indigenisation and Economic Empowerment Act needed to be repealed or fully
amended.

Chakravarti also said government needed to “immediately” cancel the bond
note project, with the facility of $200 million negotiated with the
African Export-Import Bank utilised to increase liquidity in rand to the
economy.

Zimbabwe has refused to carry out reforms on public sector wages, which
continue to gobble a huge chunk of the budget. This has crowded out
allocations to social sectors and infrastructure development.