Prof Mthuli Ncube Special Correspondent
Zimbabwe is on a journey of reform. Nobody ever said it wouldn’t be a bumpy ride; but the most important thing is that the journey has begun, and we are heading in the right direction.
The Transitional Stabilisation Programme (TSP), the first step of Government’s economic reform programme, was launched in October 2018. Its goal was clear: To stabilise the economy, attract investment and lay the foundation for shared and sustained growth.
The overall picture so far is one of cautious optimism, largely based around the effectiveness of our measures to balance the budget.
The key to managing any budget, whether a household or a country, is to not spend more than you have. For years, that is unfortunately exactly what our governments have done, and the first step towards progress is to return the fiscal deficit to sustainable levels; both through cutting unnecessary spending and increasing revenue.
The target for 2019 is ambitious, but attainable: To reduce the budget deficit from about 12 percent of GDP to 5 percent.
Over the past four months, we have made significant cuts to expenditure in five main areas: First, we have ended the unsustainable practice of issuing Treasury Bills to finance the deficit, forcing us to spend within our means and within the budget.
Second, we have reduced the public wage bill by cutting salaries of senior Government officials by 5 percent across the board, retiring over 3 000 youth officers, and establishing a more modest bonus system for civil servants that saved over US$75 million in 2018 alone.
Third, we have diverted our resources to pressing areas by freezing the hiring of non-critical staff, while hiring 3 000 additional staff in the education sector and almost 2 000 in the health sector. Finally, we have cut unnecessary expenditure and “perks” for ministers and MPs, most notably by suspending the procurement of vehicles.
These measures have been complemented by a concerted effort to widen our revenue base. One prominent example, the 2 percent tax on electronic transactions, was hotly disputed when it was announced, but its impact has been significant. US$166 million was raised in the last two months of 2018, and almost US$100 million was raised in January alone. We project that over US$600 million will be raised during 2019.
These measures have combined to have a major impact on our nation’s finances. The monthly budget deficit declined from US$242 million in November to a surplus of US$733 million in December, and a provisional surplus of $113 million for January, an impressive turnaround in such a short time.
Of course, as all Zimbabweans know, it has not been all plain sailing. The inflationary pressures we have faced have caused uncertainty and pain, and we have made dealing with this our number one concern. To address this, we have pushed ahead in our efforts to narrow the fiscal deficit and slow down money supply growth, and we project inflation to slow down to below 10 percent by the end of the year.
The shift in our monetary policy has been well documented, as we seek to remove the distortions which prevented efficient functioning of the foreign exchange market, and the economy as a whole, pushing prices beyond the reach of most Zimbabweans.
In contrast, the new monetary policy — based around the liberalisation of our foreign currency market and discarding of the fixed 1:1 exchange rate peg between the US$ and the bond note — will promote stability, bring down prices and build confidence.
Its implementation is already underway and Government has won praise internationally for truly allowing the market to determine the value of RTGS dollar. Meanwhile, the RBZ is strengthening this arrangement by focusing on containing money supply growth, while it has also put in place monitoring mechanisms to ensure that the interbank foreign exchange market is not manipulated.
A further area of progress is in the acceleration of the reform of State Owned Enterprises and Parastatals (SOEs). Having approved the implementation framework for 43 SOEs and parastatals in 2018, Government has targeted five public enterprises (TelOne, NetOne, Telecel, ZIMPOST and POSB) for immediate reforms and work is already underway to identify transaction advisors. Government projects to realise over US$350 million from this initial process.
Other key reforms underway include turning the Grain Marketing Board (GMB) into a strategic reserve entity under Government and a commercial arm; improving the governance, leadership and operational efficiency at Allied Timbers; Re-bundling ZESA (Zimbabwe Electricity Supply Authority) into a single corporate board to improve governance; the rationalisation of Industrial Development Corporation units and partial privatisation, as well as many more.
We are also accelerating and deepening the ease and cost of doing business reforms to improve competitiveness. This includes the establishment of a One-Stop Shop Investment Centre, and legislation to establish a specific and dedicated institution — the Zimbabwe Investment and Development Agency (ZIDA) — is now before Parliament. ZIDA is set to be fully operational in the coming months, and will enable the processing of investment approvals within a day, significantly improving the investment climate.
I am aware that there are those who are disappointed by the pace of change, and who expected progress to be faster. Unfortunately, this was never going to be the case. Reforming, restructuring and rebuilding our economy was always going to take time, and attempts to prematurely accelerate the process are liable to cause greater upheaval and suffering. A sober, strategic and step-by-step process remains the best way to achieve our goal.
By the same token, these improvements should not give us reason for back-patting and self-congratulations. They are but one step in a much longer journey, and will mean nothing if we don’t finish the job.
Prof Mthuli Ncube is Zimbabwe’s Finance Minister and a former Chief Economist at the African Development Bank