THERE is no doubt that sustainable economic and social development can only happen in a stable macro-economic environment. For the avoidance of any doubt, macro-economic stability is the absence of currency fluctuations, high debt burden and unmanaged inflation, which can result in economic crises and a collapse in GDP.
Vince Musewe: Economist
It also includes curtailing our economic vulnerability from external shocks and the pursuit of consistent well-thought out economic policies, which create predictability and allow effective economic and business planning and growth. Fiscal and monetary discipline, as well as a sustainable balance of payments position, are therefore key.
In addition, one cannot talk about any “macro” stability without creating the necessary political confidence. Such political confidence is driven by consistent and effective socio-economic policies, which have tangible and positive social impacts, stemming corruption, steady and purposeful political leadership with utmost respect of the constitution and institutional integrity. These to me are the key pillars for future inclusive economic growth and development underpinned by a productive economy.
The National Development Strategy (NDS1) rightly focuses on the following key deliverables:
A stable macro-economic environment, characterised by fiscal and monetary discipline, as well as a sustainable balance of payments position, is critical in building investor confidence.
Strengthening fiscal responsibility and management of Government expenditures in order to create an appropriate environment for increased budget development expenditures that enable and enhance the economy’s overall productive activities.
Effective debt management favourably skewed towards enabling the productive sector. Credit to Government must be limited while credit to the productive sector must be increased to allow more capital formation and the re-tooling of industry. Such credit must be long term to allow full capacity utilisation recovery increase output and employment.
Currency reforms and improving foreign currency generation to stabilise the foreign exchange market.
Increasing the savings pool in the country and thereby create long term domestic developmental capital.
Improving long term capital inflows, as well as managing over- dependency on imports.
Movement towards sustainable taxation, reduced penalties and interest, also nurturing businesses to enhance capacity to pay their tax dues.
These deliverables, if achieved, can certainly create a more stable and predictable economic and business environment which can result in inclusive economic growth and development. The challenge, as always, will be effective implementation and monitoring.
It is fact that the Zimbabwean economy is now driven mainly by the informal sector, which contributes an estimated 70% to GDP and this sector is naturally very sensitive to and reacts rather impulsively to any monetary economic policy changes, particularly when it comes to currency management and specifically the USD exchange rate.
An unstable exchange rate, which fluctuates, not according to demand fundamentals but according to speculative trading, is a dangerous beast whose consequences need not been numerated here. Volatile inflation creates an unpredictable pricing and business planning environment and increases the cost of doing business which consequently erode confidence on the future value of incomes, goods, services and assets for everyone. The importance of a stable exchange rate driven and underpinned by productive supply and demand cannot be over emphasised.
There is no disagreement that since June 2020 we have seen a stable USD exchange rate, which has resulted in a somewhat more predictable operating environment. Since inception, about US$1,4 billion has been purchased by corporates through the foreign exchange auction system with a significant portion of it going to productive use.
Clearly, the introduction of the foreign exchange auction system by the RBZ has helped, but more important, the clamp down on electronic foreign exchange trading transactions, particularly through Ecocash, which were largely speculative and driven not by productive demand, but by speculators and rent seeking US dollar holders and middlemen, has contributed significantly to stability and predictability. The RBZ faced much condemnation for this move but, in retrospect, everyone has benefitted from the resulting subdued inflationary pressures.
The abuse of the foreign exchange auction system by corporates isdeplorable and is symptomatic of a culture of selfishness and an unethical corporate environment driven by sheer greed on the part of those who have had access to what is a scarce commodity-that is the US dollar. In my opinion, you cannot lament for a more stable economic and business environment while you are quietly acting against policies which seek to craft the very conditions that you are demanding.
It is, therefore, in all our interest to ensure that the US dollars we may have as a country are applied mainly to productive purposes, these being primarily the importation of raw materials and plant and machinery so that we may add value locally, create jobs and earn more foreign exchange from the exportation of locally manufactured products while reducing the importation of finished and/or luxury goods.
Latest reports say that the Financial Intelligence Unit of the RBZ has since found quite a number of companies (39) abusing the privilege of being able to access foreign exchange through the auction system. This, of course, is an ethical issue which takes more than punitive measures to be rooted out, but there must be a cost to such companies and, if necessary, even complete suspension from participating in the auction system.
However suspension may create unintended consequences, especially when it comes to monopolistic or oligopolistic industrial conglomerates. Companies which have a dominant market share can at times bully consumers and monetary authorities through pricing their products as they wish and they can even get away with unethical behaviour simply because the economy is at their mercy.
An example is where a monopoly that is excluded from participating in the foreign exchange system could use the excuse of not getting enough foreign currency to cause artificial shortages of essential goods in the market place, resulting in price increases and thereby further fueling inflation. The cost of suspension from the foreign currency auction system could therefore negatively impact not only the company itself, but consumers and the economy as a whole.
Having said the above, it is still vital that everyone plays by the game by the book. I would suggest that the banking sector also takes responsibility to ensure that clients who have been allocated foreign exchange utilise that privilege accordingly. The banks cannot facilitate transactions by foreign exchange abusers and not take responsibility.
They must be the gate-keepers. In my opinion, the get-away car driver for a bank robbery is as guilty as the bank robbers! The role of the RBZ in effectively regulating and monitoring the financial services sector will therefore, continue to play a central role in creating macro-economic stability especially when it comes to currency management issues.
Going forward, it is imperative that all hands are aboard as we work towards reviving a productive economy. The business sector has a key role to play and must lead future growth but, it is important that they get their ethics right.
In my opinion, the RBZ is doing its best to create a new momentum towards economic growth given the exogenous and internal challenges we face as a country, but its policies can only bear fruit where the business sector works in tandem and not in conflict with it. Political players must also be sensitive and ensure all policies that are adopted support private sector led growth underpinned by “macro” stability.
Musewe is an independent economist and you can contact him on firstname.lastname@example.org. These weekly New Perspectives articles published in the Zimbabwe Independent are coordinated by Lovemore Kadenge, independent consultant, past president of the Zimbabwe Economics Society and past president of the Institute of Chartered Secretaries and Administrators in Zimbabwe. — email@example.com or mobile: +263 772 382 852.