Zimbabwe’s new finance minister says ‘fiscal shock’ needed for reform

NEW YORK (Reuters) - Newly appointed Zimbabwean Finance Minister Mthuli Ncube would like to employ a “big bang” economic reform program to the battered economy where unemployment is running above 80 percent, but recognises politics will limit the speed for change. Reserve Bank of Zimbabwe Governor John Mangudya and Zimbabwe's Finance Minister Mthuli Ncube brief reporters during an investment conference in New York, U.S., September 21, 2018. REUTERS/Daniel Bases

NEW YORK (Reuters) – Newly appointed Zimbabwean Finance Minister Mthuli Ncube would like to employ a “big bang” economic reform program to the battered economy where unemployment is running above 80 percent, but recognises politics will limit the speed for change.

“My preference is a fiscal shock, but there is a what you call the political collar or the politics of policy making which then slows you down. My preference would be more of a big bang approach because every day counts in terms of cost,” Ncube, a former banker, said in a briefing with journalists on the sidelines of an investor conference in New York on Friday.

Ncube joined the government of President Emmerson Mnangagwa earlier this month. Mnangagwa won a disputed vote on July 30 in the first election in the southern African nation since Robert Mugabe was removed by the army last November after nearly four decades in power.

Lack of foreign investment, fiscal deficits and acute shortages of hard currencies like the U.S. dollar are but some of the economic problems Zimbabwe, once known as Africa’s breadbasket because of its agricultural exports, is enduring.

The new government’s focus on getting the economy back on track requires paying off the roughly $2 billion (£1.53 billion) in arrears to international financial institutions such as the World Bank, African Development Bank (ADB), European Investment Bank (EIB) and the $4 billion it owes the Paris Club of sovereign nations.

John Mangudya, who is both governor of the Reserve Bank of Zimbabwe and chairman of the government’s arrears clearance committee, said the strategy is to clear the debts to the World Bank and ADB first before approaching the Paris Club.

“We are looking at many options,” Mangudya said. He expects to announce the plan within six months, noting the need for debt sustainability.

“One year from now, our wish and our hope and prayer is that we would have cleared our arrears,” he said.

Going to the International Monetary Fund cannot happen until the arrears are cleared, however. In the meantime, Mangudya would like to engage in a six-month IMF staff monitoring program through June 2019 as part of the nation’s re-engagement with the global economy.

Mangudya gave an economic growth forecast of between 4.5 percent and 6 percent for 2018.

“Next year, in line with our vision to grow the economy to above $3,500 per capita income by 2030, we think we need to grow above 7 percent in 2019,” he said. He predicted inflation will be slightly above 4 percent in 2018 and about 5 percent in 2019.

The creation of a Zimbabwean currency is not a priority, however. Zimbabwe uses a mixture of other nation’s currencies to conduct daily economic functions, which can be problematic if there are shortages.

Mangudya indicated it might be up to five years before reintroducing a local currency again in Zimbabwe, which suffered from hyper inflation as the economy collapsed.

“Currency reform is a process. The economic fundamentals are not good and ready for us to have our own currency,” he said, adding: “There is a danger of re-introducing a currency before the fundamentals are met.”