Last week, Sapes Trust held a discussion on Zimbabwe’s economy with Economist Ashok Chakravarti (representing the Finance Minister and himself), CZI President Sifelani Jabangwe and Economist Godfrey Kanyenze of LEDRIZ
Open Parly ZW filmed the talk, and you can watch it all here
But in case you want to save your time (and your bundle), you can also read the different speakers’ comments here . . .
Economist Ashok Chakravarti
Tried to put into context some of Zimbabwe’s current economic issues, the fiscal measures announced by Finance Minister Ncube on 1 October, and the logic behind RBZ Governor Mangudya’s Monetary Policy. Through this, he hoped to address issues such as the foreign exchange crisis, cash crisis and inflation.
He started off with some background:
– There’s been an admission that Zimbabwe is in a deep hole. There has been gross overspending and the government deficit has gone from 8.4% of GDP in 2016 to 16% of GDP in 2017.
– This structural deficit is the most basic problem in Zimbabwe’s economy right now. If we don’t address the deficit, we won’t be able to address things like forex and cash crisis.
– Government expenditure has to be cut, but 90% of this expenditure is wages and salaries, and cutting people’s jobs is very difficult.
– Government has been using an overdraft from RBZ to RTGS money into our accounts. This deficit has driven inflation and the foreign currency crisis.
– Solving this by borrowing more money and getting new lines of credit will not solve things in the long term. We need to solve this by reducing government expenditure / increasing government revenue.
There’s currently $9bn deposits in the banking system not backed by anything. This is a huge amount and it is purely an electronic creation. We believe it to be US Dollars, but it’s not. Our imports are about $7bn and our exports are $5.5bn. We spend the money we get on imports. The private commercial sector is in $2bn debt – this finances the imports. By creating the FCA / RTGS distinction, RBZ has finally implicitly recognised that this $9bn is not US Dollars. This is progress.
Unless policy makers address these problems, we won’t get anywhere.
The fiscal measures try to address these problems by:
– Admitting the problems that exist. This is actually a huge, new step
– Curtailing the overdraft with the Reserve Bank
– Trade Treasury Bills on the market, at the price the market sets, not by printing them and forcing people to buy them
– Reduce direct spending on parastatals
– Last June, we imported $76m worth of fuel. This June, we imported $116m worth of fuel. This is because foreign truckers have been using the gap between RTGS and the US Dollar to fill their tanks at half the price.
– Our expectations were too high. We’ve had two decades of mismanagement, and we expect it to be fixed in one month? Even with the best intentions and the best policies, it’s going to take time. We are going in the right direction, and much more needs to be done.
– On the 2% – The logic is, to sort out the budget deficit, look at the 65bn worth of transactions is going via electronic transfers. Take 2% of that and you have 1.3bn, and that will almost sort out the budget deficit. But they didn’t think about how this would impact immediately on inflation.
– The concept behind the tax is good – bout 50 – 60% of our economy is informal, and it’s difficult to tax the informal sector. But there should be a cap of that – say $20 or $50 (something acceptable to the business community) max regardless of the size of the transaction.
CZI President Sifelani Jabangwe
– The biggest problem is fiscal indiscipline. The more RTGS money that gets created, the more it chases the US Dollars
– Not all businesses have been prioritised for getting access to foreign currency, only those producing basic commodities. Everyone else has had to fend for themselves, and the government turned a blind eye.
– There is now an exchange rate between the USD and the RTGS. We have to recognise that. This is driving prices.
– The fiscal deficit has been helping business expand, export more, and become more competitive locally. But we need a softer currency (for example the Rand) to be able to take advantage of this. But how do we get to this stage?
– RBZ is only allocating 30% of the foreign currency on the market. The rest is out there being traded.
– September to November is always lean – Tobacco exports are out of season whilst businesses are purchasing for Christmas sales, so there’s a spike in demand for foreign currency at a time when there is less available.
– As industry, we believe things are painful, but it’s not doom and gloom. It is not 2008. It has to do with how we manage it. Is there the will to start to do the right things.
– We need smarter ways to build manufacturing – Enterprise is the best defense against poverty.
– We are importing beans, nuts to convert into oil, peanut butter, tinned beans. We could be growing these things here – help farmers produce more, that will grow local demand, and reduce import bill and foreign currency demand.
– It’s time to act. The private sector needs to show leadership in growing the economy.
– Government is open, the problems have been acknowledged, and is taking steps in the right direction. We could be getting on to the right track.
Key issues and challenges in where we are
– Sometimes economists separate the economics from the politics and behave as if the economics operates without the politics. But they affect one another. A political economy approach can help us understand things better.
– Zimbabwe is a broken country. The state is broken. The opposition is broken. Civil society is broken. We are highly polarised. We can’t move when we are broken. First, we have to bring the pieces together.
– There will be trade offs, no matter the approach we take. So first we need a stakeholder approach – build the nation first, build national cohesion and consensus so that people want to work together to move forward together.
– There is no common understanding of where we are or where we want to go – Need to do this together, understand where we are, and move forward together.
– Since 2013, the domestic debt has gone from $250 million to $9 billion – And in the past year it’s grown by over $4 billion just since the “new dispensation” – so the practises of the past have continued.
– The budget deficit has grown because of government programmes and incentives – but now they look at us as if this deficit has just appeared – and we must all pay for it, not just those who benefited.
– The time has come for citizens to demand things. To make government accountable. We can’t stand here and agree to pay for a debt where we know where it came from and we know who benefited.
– There is a $16bn total debt. Government has launched a stabilisation programme to address this, which Cabinet saw this week, but without any consultation with the rest of the country.
– Nothing about us without us. We need to know where we are going. We have a huge trust and confidence deficit in this country. We’re in a minefield. You have to tread carefully.
– The RTGS / FCA account distinction won’t solve anything. The problem is the shortage of foreign currency. Everyone will want the Nostro FCA, which will push the prices up and add to inflation.
– We need a social contract where we all sit and discuss together how we are going to move. There are already fora for dialogue – like the Tripartite Negotiating Forum. Use it.
– Leadership in a broken country implies you should be at the back, and make sure everyone is in front of you, everyone is moving together. If it’s a new dispensation, we need a radical change.
– 2% – The little that people in the informal sector make is already under very difficult conditions. The cash crisis has pushed them into electronic transfers – banking and mobile money. And now you tax that to pay off your deficit? A developmental state with $16bn debt, we could have sorted out our infrastructure. But guess where we are.
– Zimbabwe does not have a problem of liquidity. It has a problem of stewardship. There are resources, but we can’t account for them. Those diamonds could have made a difference. The insurance industry could have made a difference. But it’s fragmented, it’s not transparent, there’s abuse of resources. AFRODAD reports we’re losing $1.8bn per year in illicit outflows. Let’s close those gaps.
Source: SAPES Trust discussion 4 October, video via Open Parly ZW