Honeymoon over for Mnangagwa

Zimbabwe President Emmerson Mnangagwa, wearing a blazer bearing his campaign promises, speaks to The Wall Street Journal weeks before landmark national elections. Photo: Cynthia R. Matonhodze for The Wall Street Journal

HARARE –  A $1.4 billion fiscal deficit in the first half of the current year is the biggest economic challenge confronting Zimbabwe’s newly inaugurated leader, Emerson Mnangagwa, who, according to economists and analysts, has to hit the ground running to lift the country’s low productivity and lay down conducive policies to attract investors.
With elections now behind Zimbabwe, the attention has shifted to efforts by Mnangagwa’s government to address the economy.
He starts this with appointments to cabinet, which are eagerly awaited following Mnangagwa’s pledges that there will be a shift in priorities under his administration.
“If he does well he will be able to re-assure the economy and the business community that it is worth to invest in Zimbabwe. So much money in terms of investment funds was on hold because of the elections and the political risk factor but as long as investors get the right signals, the ball is now in the new government’s court,” said independent economist Moses Moyo.
Zimbabwe, which counts South Africa among its biggest trade partners, is desperate for investments in its mining, tourism, agriculture, industry and manufacturing sectors among others. The funds say industry officials, are needed to retool local companies and upgrade infrastructure.
Although addressing investor concerns will be among the top priorities and expectations around Mnangagwa’s administration, the biggest worry at the moment has come in the form of ballooning budget deficit. In the six months to June, the government of Zimbabwe had run up a deficit of about $1.4 billion.
In his inauguration speech, Mnangagwa said this week that his new government will be committed to addressing the economic imbalances, which are a result of a huge import bill and a high public service wage bill.
“Measures will be taken to correct the fiscal imbalances that threaten to undermine the viability of the financial sector as reflected through the spiralling cash shortages and the distortions plaguing the foreign currency exchange market,” Mnangagwa said.
Cash shortages have persisted in Zimbabwe, the clearest sign yet that Mnangagwa’s honeymoon after winning the July 30 election will be short-lived . Industrialist Busisa Moyo said this week that parallel “rates on the street” for the greenback “have gone down from 80-85% to 60-65%!” although banks are still struggling with cash shortages.
Mnangagwa’s predecessor, Robert Mugabe, resisted pushes from the International Monetary Fund to cut the civil service wage bill. Mnangagwa appears to be aware that the high civil service wage bill is impacting on economic and budget performance after he said “necessary steps will be taken to create fiscal space through rationalisation and cost-cutting” measures.
During the first half period, the public wage bill amounted to $1.3 billion, while recurrent expenditures for the government were $300 million – above target at $2.4 billion. Zimbabwe is also keen to review Bilateral Investment Promotion and Protection Agreements it has with other countries “to promote and encourage investments” from across the world.
Zimbabwe is also saddled with a high external debt position, which is frustrating efforts to seek new funding. Experts say the country will have to expedite its debt settlement plans to unlock further funding potential.