Ben Bernanke, the former Chairman of the United States Federal Reserve, is revered for being one of the great minds that made bold decisions which subsequently ended the Global Financial crisis of 2007-8. At the centre of his philosophy to end the raging economic crisis that had seen the folding of systemically important banks and insurance firms, was the need to inject the economy through a stimulus package.
By Ngonidzaishe Makaha and Adrian Mapiye
The stimulus package that Bernanke advocated for was designed to spur the frozen credit markets and get the financial system and the whole economy working. Amid his efforts to turn the US economy around there was a lot of bickering among the Washington elites and sceptics who could not tolerate the moral hazard that is often caused by government bailouts and other stimulus activities.
On Thursday 18 September 2008, Bernanke presided over a meeting with Congressional leaders and other top policy makers where he sought to push his agenda for a USD70 billion stimulus package to save the financial system. To counter the bickering and win the minds of sceptics Bernanke told the meeting, “If we don’t do this, we won’t have an economy on Monday”. How that statement managed to convince everyone to support the stimulus agenda might not be known but what is clear even to this day is that the stimulus packages Bernanke and others advocated for, saved not only the United States’ economy but the global economy at large.
Zimbabwe’s economy has not performed very well for a long time due to a host of issues and there is no official classification to describe the current economic trends. Some say Zimbabwe is in a recession, others opine it’s a depression whilst others are adamant there is growth which is only anaemic. Reality on the ground clearly signals trouble and to counter the sick economy there has been a consistent and deliberate attempt to adopt austerity as a panacea.
Austerity is a measure aimed at reducing government spending and increasing taxes to avoid debt traps. Often than not, austerity leads to slow economic growth to an extent that it becomes disastrous if the full objective of recovery is not realised.
Greece, for example, has failed to emerge from its austerity initiatives stronger. The Greek context contrast starkly with Zimbabwe’s. Greece was largely pursuing the austerity route to manage its sovereign debt, widening bond yield spreads and avoid potential a bankruptcy. In fact, the austerity was a precondition to various bailout packages that were proposed by the European Union and other multilateral financial institutions including the International Monetary Fund. Zimbabwe is pursuing austerity out of its own volition and perhaps the need to lower the fiscal deficit. However, the problem lies in the fact that there is no back up to the austerity. Greece had the Eurozone countries to look to whenever they felt like triggering a bailout package, yet Zimbabwe has no one.
There is need for Zimbabwe to probe her macroeconomic objectives. Do we need austerity or a growth stimulant to spur the economy? So far, it seems the main aim is to balance the budget through austerity but to what end? A vicious cycle where austerity has led to lower consumer spending and high taxes is not sustainable. It can only drain the sick economy further.
Reducing the budget deficit is not a bad idea but what Zimbabwe urgently requires is an economic stimulant. The Bernanke scenario is what might put Zimbabwe’s economy in a position for prosperity, further aiding economic objectives like balanced budgets and containing fiscal deficits through increased consumer spending and corporate taxes. The problem though is that policy makers in Zimbabwe do not have the bazooka that Bernanke triggered. The stimulant will not come from the same Treasury that is helplessly trying to contain its budget to achieve a balance between income and expenditure.
It is imperative then for such stimulus to come in the form of economic injections like investment and savings which can be private sector led. There is need to attract sustainable Foreign Direct Investment and promote savings at corporate and state level. Bernanke and his colleagues triggered the multi-billion dollar stimulus package to save the United States economy and Zimbabwe needs to trigger investment and savings to resurrect her economy. Austerity works in debt management but is not much effective in driving ailing economies. Its time for Zimbabwe’s Bernanke to stand up or “we might not have an economy on Monday”.
Ngonidzaishe Makaha and Adrian Mapiye write blogs which cover financial analysis, equities, financial inclusion, development finance, analytics and Cybersecurity. They write in their personal capacities.