REFORMS instituted by the Government since the Second Republic took office in 2017, have put the economy in a much better condition while also priming it for recovery and sustainable growth, economists have said.
By Golden Sibanda
Renowned economist, Dr Godfrey Kanyenze, said this during the first quarter economic performance review virtual seminar hosted by Confederation of Zimbabwe Industries (CZI) last Friday.
Another economist, Mr Kurai Matsheza, told the same forum that it was “important to embed current policies and avoid frequent policy changes, as these then turn into shocks for businesses”.
Mr Farai Mutambanengwe, who is also economist, said that the stability in the first quarter was attributable to a “stable monetary base, stable policy environment and structural dollarisation, which will drive recovery”.
Dr Kanyenye said President Mnangagwa’s administration had, since assuming power in September 2017, broken ranks with a number of bad policies that turned the economy on its head, igniting runaway inflation.
Some of the reforms the new Government has adopted entail the discontinuing of recourse to the central bank overdraft window, sticking to national budgets and keeping a hawk’s eye on money supply.
Government has also initiated cross-cutting reforms including ease of doing business, a range of economic policies, on legislation and State enterprises as well as global engagement and re-engagement, among others.
“In the First Republic, there were certain behavioural traits that had crept in; fiscal indiscipline had crept in, where the Government was going to the banking sector to borrow, even beyond the limits that are allowed.
“They were going to the central bank to use the overdraft facility and it was about three times over the limit to basically finance runaway expenditures at the expense of living within its means,” he said.
Dr Kanyenze said the previous administration had abandoned the cash-budgeting framework that was adopted in 2009 upon dollarisation, which created challenges that affected the economy.
He said that by simply adopting fiscal consolidation and living within its means, the Second Republic restrained money supply growth and kept it within target and the acceptable thresholds.
Industrial output also hit record growth levels last year, budget surpluses are now a common phenomenon while foreign currency deposits within the banking sector have exceeded the dollarisation era.
While a lot still needs to be done, Dr Kanyenze said, a foundation for sustainable growth is now in place.
“That basically has resulted in the inflation rate coming down rapidly. So, it is not surprising because (by doing this, the Government) have moved to an acceptable macro-economic (policy) framework.
“By doing that you have abandoned irresponsible macroeconomic management we were seeing towards the end of the first republic so there is a modicum of order by living within your means,” he said.
Dr Kanyenze said with macroeconomic balance achieved, an economic rebound was expected driven by a good rainy season, better power and forex supply, exchange rate and inflation stability.
“When you bring all those things together, you should expect a much more stable macroeconomic environment, (although) inflation is still high at 161percent, but it’s coming down rapidly.
“So we expect that if the Government continues on that trajectory, that macroeconomic management framework, inflation should really come down to single digits this year,” Dr Kanyenze said.
The Harare based economist said the domestic economy has been punctuated by intermittent growth phases since independence in 1980, which basically followed weather patterns or cataclysmic factors.
“So we are saying instead of relying on weather patterns or certain factors beyond our control, they need to ensure that trajectory is sustained through deliberate structural (economic) reforms.
“We need to initiate public enterprise reform, deal decisively with the issue of corruption and interstitial decay, maintain infrastructure and rehabilitate it, undertake public sector reform,” he said.
Dr Kanyenze said expediting public sector reforms was critical to ensure budgets are steeped towards capital programmes so that the country can sustain economic growth in the longer term.
He said Zimbabwe has experienced capital swallowing, a scenario which over the years had prevented adequate recapitalisation, which eventually manifested in massive infrastructural decay.
“Imagine now if NRZ (National Railways of Zimbabwe) is brought back on its feet, if power generation is sustained, if we create a much more predictable policy environment, …not based on election cycles.”
Moving forward, Dr Kanyenze said policy formulation should entail significant social dialogue to create broader ownership of Government programmes, which are not influenced by party politics.
He said it was critical to ensure widespread policy buy-in and cohesion, which when achieved would put the country in the realm of developmental states, similar to what is happening in Rwanda.
“When you look at the developmental states like Rwanda, things move (or happen) very rapidly. (if you achieve that) You have now moved away from a vicious cycle to a virtuous cycle,” Dr Kanyenze said. – Herald