Government should adhere to reform measures enshrined in the short-term economic blueprint, the Transitional Stabilisation Programme (TSP) and should not necessarily change strategy due to new challenges emerging from the impact of ongoing reforms, economists have advised.
Economists said the Government was fully aware and clear on the nature and extent of the deep seated problems currently buffeting the entire economy and had crafted the TSP in efforts to address them. As such, the TSP prescriptions must be allowed to run their full course.
This comes as debate has been rekindled in certain quarters that Government should consider adopting the South African rand as the functional currency or better still adopt a currency board to deal with issues of currency volatility, which has stoked a wild inflation run.
Economist Pascal Mandeya said in an interview that, it was expected that the reform measures would bring fresh challenges, as Government lays the solid foundation for sustainable growth, but said shocks from the reforms must not divert attention from the original TSP plan.
As the new dispensation bids to correct the economic ills of the past and lay the foundation for a brighter and prosperous future, the bane of the reform agenda has come in form of high inflation, constant change in prices, fuel shortage, stagnant incomes and acute power shortage.
Zimbabwe’s annual inflation rate raced from 5,39 percent in September last year to 175,5 percent at the last official count in June this year, while current estimates put the inflation figure at about 300 percent.
This has come against growing shortage of foreign currency, which has put pressure on demand and stoked a wild exchange rate run, which has triggered the inflation run.
From trading at US$1 to 2,5 RTGS dollars when Zimbabwe liberalised the exchange rate system in February this year, the domestic unit’s conversion rate has lost significant ground against the US dollar, and is now trading at averages of 1 to 15 on the interbank market.
But, Mandeya said while the cocktail of policy reforms under the TSP, which runs from October 2018 to October 2020, have brought new painful challenges on the majority of citizens, it was expected that this would happen.
However, Mr Mandeya said that the Government must not look back, chop and change approach to match every new problem including considering suggestions such as a currency board.
“A currency board is not a group of people managing the exchange rate, it is a different arrangement. You take an amount of foreign currency and local currency of an equivalent amount and everyone and then holders swap the currencies.
“You actually fix the amount of foreign currency physically backed with the amount of local currency, usually on an exchange rate of 1 to 1.
“So, one would need to swap an equivalent amount of local currency to the foreign currency required, that is the currency board,” he said.
The TSP is a precursor to the two five year National Development Strategies (the first plan covering 2021-2025 and the second plan covering 2026-2030, and provides quick wins to stimulate economic growth and stabilise the macroeconomic and the financial sectors.
The policy is anchored on Vision 2030, which seeks to usher Zimbabwe into an upper-middle class economy by 2030 with a per capita income of US$2 018 by 2020 and rising to US$5 821 by 2030.
It seeks to stabilise the economy, which lost more than half its Gross Domestic Product (GDP) over the decade to 2008 amid world record inflation-peak of 231 million percent at last count — a development that was characterised by company closures, widespread unemployment, low investment and yawning infrastructure gaps.
“These other people who comment and make suggestions for adoption of other solutions do not bother to read the TSP, even in terms of recommendations people make, if they cannot even familiarise with where the country is trying to go, nothing will work.
“A lot of these problems we are seeing now are a result of adjustments that are being done to address our economic challenges. So, you cannot fix a problem generated by part of a transitional plan, as if the problem just emerged spontaneously.
“For instance, following the conversion of US dollars to local currency, it was obvious that additional cash would be required because the bond notes cash that were there were not enough as a part of a multi-currency dominated by US dollars.
“It was known that more notes would be required for injection into the system, but without disrupting the economic situation in terms of money supply, which has effect of driving inflation. But, people appear surprised by current cash shortages.
“Bringing a lot of other people and views to participate in a programme they do not quite understand will create problems because you start bringing in new systems that are against an existing plan. Cabinet approved the TSP, it does not talk about some of the solutions being suggested like adopting the Rand, (and currency board),” he said.
Mr Mandeya said the TSP must be allowed to run its full course and authorities must not be pressured to consider completely new solutions and approaches each time there is a temporary challenge that emerges as a result of the ongoing reforms.
“We have the challenge that people are quick to want to suggest new solutions and approaches to resolving challenges that emerge as a result of the ongoing measures being implemented under the TSP, this just does not make sense” he said.
Mr Mandeya said it was absurd for instance that some people rush to criticise the Government over foreign travels, yet part of proposed solutions to the country’s challenges entail engaging and re-engaging other countries and the international community.
Harare based economist Dr Gift Mugano said that the issue of which currency Zimbabwe should or can use was inconsequential at this point for as long as the issues of production and productivity in the economy have not been address adequately.
“As long as you are not productive, it does not matter which currency you take, it will get eroded. A currency is backed by production; why the US dollar precipitated out of this whole economy was because we are not productive,” Dr Mugano said on Friday.
“It is one of the strongest currencies, but it evaporated. Those RTGS balances which have been increasing here and there are a result of structural imbalances in the economy. Even the Zimbabwean dollar today, it can be a very good currency if it is backed by production.
“That is why you hear that Kenya, Rwanda do not get as much foreign currency as Zimbabwe, but they are more productive than us and no one in the countries demands foreign currency; their (domestic) currencies are stable,” Dr Mugano said.