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Zimbabwe: Reviewing govt’s Transitional Stabilisation Programme

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The Transitional Stabilisation Programme (TSP) was launched on October 5 2018, after the August general elections. The programme’s objective was to leverage on the country’s core competencies in natural resources (among other resources) to rebuild and transform Zimbabwe into an upper middle-income economy by 2030.

By Victor Bhoroma

This would entail achieving a nominal gross domestic product (GDP) of US$65 billion by 2030, a gross national income (GNI) of US$3 500 per capita and sustaining growth rates of 7% per annum for the next 12 years. Some of the programme’s objectives include creating over 2,2 million jobs, thereby alleviating poverty, infrastructure rehabilitation and development to the tune of US$1 billion annually.

A middle-income country (MIC) is a nation with a per capita GNI ranging from US$1 026 to US$12 375 according to the latest World Bank classification of July 2019 while a low-income country has per capita GNI of less than US$1 025. A country’s GNI status is influenced by factors such as economic growth, inflation, exchange rates, and population growth. The World Bank had upgraded Zimbabwe to a lower middle-income country in July 2019 and this was set to last for the period 2019-2020.

But four months down the line, the World Bank has downgraded Zimbabwe back to a low- income country. The International Monetary Fund (IMF) has warned that the economy could contract by at least 7,1% (up from the April figure of 5,2%). The government has also predicted that the economy will shrink by at least 6,5%, while analysts believe the figure could be in the double-digit zone.

The quick downgrades are alarming and show that the country is rapidly sinking in a deeper socio-economic mess than the government is communicating. Official inflation has quickened from 4,38% in August 2018 to over 353% in September 2019 and it is expected to close the year at more than 500% (2019 monthly average of 156%, way above the TSP target of 5%).

The local currency has continued on a downward spiral since the opening of the inter-bank market in February this year while export earnings from the mining sector have plunged by 15%. The same can also be said for the manufacturing sector which is expected to close the year with capacity utilisation below 28%. Poverty levels have also risen sharply in the past 10 months from the 72% stated by ZimStat in December 2018.

The TSP agenda has seen a massive economic downturn in a period of less than one year and it is fair to say the programme has had a devastating effect on the economy and Zimbabweans at large. However, there have been spots of success especially in trying to liberalise the economy from command economics in energy and financial services.

Notable progress has been witnessed in the ease of doing business where construction permits and operating licences are now processed faster under the One-Stop-Shop (OSS) model. The amendments to the Indigenisation and Empowerment Act (through the Finance Act of March 2018) and further relaxation of the law, has seen foreign direct investment (FDI) inflows reaching an all-time high of US$745 million in 2018.

The introduction of the open auction system on the issuance of Treasury Bills (TBs) is helping to bring transparency in government deficit financing even though a lot still needs to be done in terms of accountability on the actual value of TBs issued to date and their maturity.

The return of the inter-bank market and bureaux de change has also provided a cue to free market policies in the financial sector on the trading of currencies, even though concerns remain on the underhand influence of the central bank on the inter-bank rates. Over US$830 million has been traded on the inter-bank market so far since February 2019 and that figure could have been more if the central bank plays its full role in liquidating retained foreign currency earnings on the market.

The compensation of dispossessed white commercial farmers for developments done on the land was a good gesture towards normalising relations with international partners and it is expected that the government will continue on the re-engagement path with the European Union (EU) so as to re-open export markets for local commodities in the European Union and facilitate investment in the local economy.

In terms of infrastructure, the awarding of the US$4,5 billion Batoka Gorge hydro-electric project to Power China and General Electric (GE) promises to be a game changer in electricity generation, considering the supply gaps being experienced. The country had been plunged into 18-hour power cuts from May to September 2019, with the situation slightly improving in October.

On road construction and maintenance, a few roads have been resurfaced in urban areas from Zimbabwe National Roads Administration funds while the upgrade of the Karoi-Binga Highway (if it materialises) is expected to cut travelling distance from Harare to Victoria Falls by more than 200km.

The Beitbridge-Chirundu highway has no meaningful development to write home about despite years of rhetoric on resurfacing and widening the road. The road has had its fair share of scandals from corruption, poor maintenance to government hopping from one tender to another without any serious investment to the key trade link in Southern Africa.

Notable disappointments for the TSP have been on the failure to control growth in electronic money supply which is not backed by growth in GDP. As of September 2019, broad money supply had grown to over ZW$17,1 billion from ZW$14,77 billion in June 2019. The growth emanates mainly from twin evils of government funding for command agriculture while importing cereals such as wheat, maize and soyabean at the same time.

The failure to manage inflation rate and adjust civil service salaries in line with inflation rate has seen consumer buying power decimated in less than a year. Notable failures have also been on the persistent cash shortages with an avalanche of command inspired legal instruments which have added fuel to the fire. Fuel queues also persist despite regular upward reviews of pump price by the Zimbabwe Energy Regulatory Authority.

Service delivery in education and health sector has slumped to an all-time low with entirely all referral hospitals incapacitated in terms of basic health care tools. The restoration of monitory policy through the re-introduction of the Zimbabwean dollar has all but wiped away the little confidence the market had in the monetary institutions of the nation.

Policy inconsistency continues to be the government’s Achilles heel when it comes to monetary policy and economic management in general.

Despite the hype associated with the TSP launch, the programme has faltered on the implementation of key reforms needed to achieve its set objectives. Key areas that need priority going forward include competitive remuneration of the civil service in line with regional trends and addressing poverty levels with the provision of basic amenities such as water in urban areas. This requires long-term solutions such as construction of new dams and replacement of old piping infrastructure.

The exchange rate still remains volatile with the increase in inflation rate having devastating effects to consumer income and corporate earnings. The corporate sector is clamouring for better management in the allocation of foreign currency generated by the central bank, with concerns that the current forex shortages are a result of misallocation of the resources to non-core expenditure.

There is also need for real fiscal consolidation that can see the government declare budget surpluses as opposed to the bookkeeping ZW$804 million announced in June 2019. It is no secret that the success of the TSP programme in 2020 heavily relies on how Treasury reins in on budget overruns which exert pressure on the central bank to print more money.

The government has more work to do on privatisation of state enterprises and parastatals (SEPs), structural and governance reforms and policy incentives for productive sectors such as mining and manufacturing. These incentives can result in significant employment creation, growth in exports and real economic growth to support the unrealistic GDP growth rate figures in the TSP document.

Bhoroma is an economic analyst. He is a marketer by profession and holds an MBA from the University of Zimbabwe.