Beyond the macro-economic stabilisation programme

Tapiwa Mashakada

The economy can be dissected into three pillars that all impact on stability. These three pillars are called: The internal balance pillar, the external balance pillar and the political economy pillar. The three pillars are interrelated as they all affect macroeconomic stability. At this stage, let me hasten to define the three pillars in a little more detail.

By Tapiwa Mashakada

Internal balance

This looks at the macroeconomic policy mix which essentially means the interplay of fiscal and monetary policies to influence macroeconomic targets including, the budget deficit, exchange rate, interest rate, inflation, growth and money supply.

These are the key variables targeted under internal balance. Zimbabwe has been in sixes and sevens regarding the effectiveness of its fiscal and monetary policies.

The external balance

This pillar basically looks at the balance of payments, namely, the current and capital accounts. The key variables under this category are the trade balance and net capital inflows.

Political economy

The third pillar is what I call political economy issues that deal with such issues like transparency and accountability in public financial management, corruption, policy consistency and public policy, among others. These issues also relate to political, economic and climatic shocks.

Zimbabwe has had a chequered history of economic stabilisation programmes.

During the GNU (2009 to 2013), the economy was characterised as stable due to the stabilising effect of dollarisation on inflation. By the stroke of the pen, dollarisation ended many years of hyperinflation, leading to price stability. From this experience, it is clear that price stability is at the epicentre of macro-economic stability.

During the GNU, the country experienced disinflation or negative inflation.
The economy grew at an average rate of eight percent between 2010 and 2013.

During this period, I was the Minister in charge of Economic Planning and the economy was guided by the Medium Term Plan (MTP) and Sterp one and two.

Fast forward to the November 17 period when the president Emmerson Mnangagwa (ED) government de-dollarised and introduced mono currency. The results were initially disastrous. The parallel market exchange rate ran amok as the surrogate currency (bond notes and RTGS) drove parallel market rates upwards. The transmission mechanism on prices was devastating. We all experienced inflationary hell and economic recession between 2017 and July 2020.

This parallel market induced price madness was stopped by the Reserve Bank when it introduced the Dutch Foreign Currency Auction System in July 2020.

The official exchange rate stabilized at 1:82 until todate. This policy shift was remarkable as it stabilised the exchange rate in a more sustainable manner.

The GNU experience was about price stability anchored on dollarisation whereas the ED era is about exchange rate based price stability.

Technically, it means that price stability depends on money supply growth and the exchange rate. This relationship was empirically tested and proven by Carren Pindiriri of the University of Zimbabwe Economics Department in his 2020 pathfinding study on a research project commissioned by the CZI. Therefore, there is no question that internal balance is key to macroeconomic stability.

Turning to external balance, it is clear that under the GNU, the trade deficit widened. The trade balance was a negative US$3 billion whereas under the ED administration, the government managed to reduce the twin deficits under the Transitional Stabilisation Programme ( 2017- Dec ember 2020). To date, the budget deficit is under five percent while the trade deficit has been reduced to under $1 billion (usd) per annum.

Apart from external and internal balance, it is instructive to note that political economy issues can also adversely impact economic stability. Look at the effects of climatic shocks on growth in the recent years. Look at the impact of corruption and illicit financial outflows together with the disastrous effects of policy missteps.

Stability must not be an end in itself

The Bretton woods institutions are infatuated by stability. In fact the International Monetary Fund and the World Bank have this religious fixation on stability without qualifying the nature of stability. Stability is a necessary but not sufficient condition for economic development. Economists agree that there are various forms of stability. In fact stability can be achieved at less than equilibrium levels which means the economy can stabilise pari pasu with unemployment and under-utilisation of domestic resources. A typical case is whereby the economy enjoys both price and exchange rate stability (like now) but without Growth. This scenario is what Zimbabwe is experiencing right now. It is a below equilibrium stability.

The challenge therefore is to push for the full employment of resources to achieve stability at equilibrium levels by ratcheting up supply side response. This is what the National Development Strategy (NDS1) seeks to achieve between 2021 and 2025.

We all hope that it is not going to be another pipe dream.

The Covid-19 pandemic is the elephant in the living room. All other things being equal, Zimbabwe aims to achieve a growth target of 7,4 percent in 2021 and annual inflation rate of 10 percent by December 2021. But even if these economic targets are achieved, will that translate to the achievement of SDGs for the upliftment of the lives and livelihoods of our people? We must not celebrate the stability based on metrics but the stability that leads to socio-economic transformation. This is the challenge Zimbabwe must be equal to.

We are a rich country that must never celebrate mediocrity. Zimbabwe must leverage its natural and human resources and leap frog towards Vision 2030.

Unfortunately, most people erroneously or justifiably think it is a Zanu(PF) Vision and not a National Vision. We need to galvanise our country and focus our attention on what is best for Zimbabwe.

That is why it is important to have an unconditional and inclusive national dialogue in order to move Zimbabwe forward not. backwards. From an economic perspective, dialogue must focus on economic reforms that can put Zimbabwe on a Sustainable Economic Recovery Path that lives no one behind.

Economic dialogue

In this regard, economic reforms should not only focus on internal and external balance but on economic reconstruction and transformation. Zimbabwe’s economy is a former shadow of itself. Reforms must restore Zimbabwe’s glory through agrarian reforms that will turn land assets from dead assets to productive assets.

Agriculture is the backbone of Zimbabwe and any economic turnaround must start with agrarian reforms, mechanisation and water resources management;
Beyond Agrarian reforms, we must aim at Re-Industrialisation driven by production value chains and strategic import substitution. Key to this strategy is the revival of our industrial assets like Zisco Steel and other national assets that have been long stripped like for example, Zeco, NRZ and so on and so forth. The indicator of industrialisation is the improvement in capacity utilisation;

An Infrastructural development plan is required starting with all. urban roads.
Water and sanitation hygiene (Wash) is critical for sustainable recovery;
Health sector reforms which will necessitate massive investments in new technology drugs and new hospitals are required as a matter of urgency;

Domestic and foreign investment;

Currency reforms — from our experience, Zimbabweans do not have confidence in the mono-currency yet it is legal tender. What purpose does it serve when almost all transactions have been dollarized? This is where authorities need to take bold steps. The current stability we are enjoying is definitely due to dollarization, besides the Auction system;

Job creation — most people do not understand the economy-wide benefits of employment. There are many low hanging fruits that spring from jobs. Employment achieves the following — incomes that push up aggregate demand and therefore production, personal income taxes that directly fund public expenditure, Social Security Funds like pension funds provident funds and insurance are driven by wage employment and finally employed people fund retirement benefits and transfers. That is what formal employment does to the economy. Now compare this with the informal sector, which cannot do as many things i have outlined above. Employment creation requires the total transformation of the Zimbabwean economy from dualism and enclavity to a more robust and inclusive formal sector economy;

Diaspora funds and related financial structures — in many African countries, the diaspora brings more capital and remittances back home than foreign aid, grants and loans. Countries like Ethiopia, Eritrea, The Comoros, Congo Republic, Togo and others are benefitting from remittances. Diaspora remittances are the anti-dote of Sanctions. Zimbabwe must stop mourning about sanctions and explore sanctions busting measures;
Confidence — this a political economy variable which depends on good governance in all its dimensions. Most countries with great potential fall on political economy and Zimbabwe is not an exception.

The Silver bullet

In order to achieve the above economic reforms, Zimbabwe must reestablish the National Economic Planning Agency (NPA). The NPA will develop plans and development targets, including national projects.
This is how countries are able to move beyond stabilisation to development. By their very nature, Ministries of Finance play a limited role of managing the budget and macro-economic stabilisation.

Professor Mthuli Ncube and his team are doing this very well.
In my illustrious career as an Economist I have studied many economic development models and I have come to the conclusion that nothing beats Development Planning. Look at Malaysia, Singapore, South Korea and Rwanda just to name a few countries.
+If we do not plan, we perish. The minority Rhodesian economy was a well planned economy. In fact, most of the dams e.g. Tugwi-Mukosi (which the whites vulgarized to Tokwe-Mukosi) which were constructed after independence, were planned long back by Rhodesians.

My thesis is that without national economic planning, Zimbabwe may take too long to achieve Vision 2030 and SDGs. I am not taking away anything from NDS1 which is a good economic blueprint. All I am saying is that NDS 1 is hamstrung by short-term macroeconomic stabilization objectives and budget management at the expense of long term development planning projects and mega projects. The Chirundu-Harare-Beitbridge highway is a step in the right direction. It is one good example of the good work a developmental state can do.

In all this our greatest resource is our people. We have the skills to develop our country. We must not ruin our country in the pursuit of narrow and selfish interests bordering on power hunger or personal egos.

The greatest enemy of development in Zimbabwe has been expensive and useless elections which are always contested because there are no reforms. Zimbabwe has become an election-centric country and this has prejudiced economic development.

My proposals for dialogue on economic reforms are informed by the love of my country and a broad understanding of Economics and how economies grow.

In conclusion, I urge Zimbabweans to lower the volume on politics and contest each other based on the supremacy of economic ideas. I hereby challenge my fellow Economists to stand up and be counted. Let the dialogue on economic reforms begin!!.

Mashakada is a well renowned Economist and former Minister of Economic Planning & Investment promotion. He is an academic, businessman and politician. He writes here in his personal capacity. These weekly New Perspective articles are coordinated by Lovemore Kadenge, Independent Consultant, past president of the Zimbabwe Economics Society (ZES). Email – and Mobile +263 772 382 852.

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