HARARE – A fragile political situation that could prove catastrophic — gross domestic product (GDP) growth of less than one percent, a notoriously high unemployment rate, widening inequality and the industrial failings of a commodity-driven growth model — not a pretty picture of an economy. Yet this is what Zimbabwe is faced with.
Economic analysts said the country’s economy is headed for an implosion if President Robert Mugabe, who turns 93 in February, does not solve the succession issue which is tearing his Zanu PF party into pieces.
Cato Institute senior fellow Steve Hanke — who correctly predicted the demise of the Zimbabwean dollar in 2008 — said the ailing nonagenarian leader’s populist and Marxist economic policies had failed and were destroying Zimbabwe’s economy.
“Zimbabwe government is so incompetent that it has broken Real Time Gross Settlement (RTGS) system, causing huge premium on United States dollars cash. Zimbabwe economy collapse,” he said on Twitter.
Hanke, who has been involved with the government and currency reforms of a dozen different countries around the world, and in 2007 developed a hyperinflation index for Zimbabwe, said Mugabe’s policies resulted in 71 percent decline in cotton production and 50 percent in apple production.
Former Economic Planning minister Tapiwa Mashakada concurred with Hanke and said government’s penchant for lavish spending was effectively collapsing the country’s fiscal and monetary systems.
“Between 2009 and 2013, government ran a cash budget and balanced its books. By the end of 2013, the budget deficit only crept to $50 million. Between 2013 and 2016 the budget deficit rose to $1,2 billion.
“Fiscal prudence was thrown out of the window and government recurrent expenditure rose dramatically. Yet revenue performance declined over this period from $4 billion per annum to $3,6 billion by end of 2016. Expenditure ballooned from $3,8 billion to $4,8 billion.
“The unexplained increase in employment costs did not help the situation. Clearly, without fiscal balance there is no macroeconomic balance. The fiscal deficit has sparked a deep fiscal crisis in Zimbabwe,” the MDC legislator said.
Mashakada also said government’s issuance of Treasury Bills (TBs) was now out of hand, urging treasury to shut down the provision.
“All in all, the financial sector was abused by the issuance of TBs. In 2016 alone, it is thought that government issued TBs in the amount of $4 billion.
“The majority of these TBs have not been redeemed. Pension funds, mutual funds and building societies were badly exposed to these TBs. To this day, one of the building societies has not recovered from the exposure,” he said.
The former minister also said the country’s political environment was hampering economic growth.
“At present, our politics is toxic and it affects economic recovery… it is my humble opinion that Zimbabwe has great potential to balance the uneasy triangle of fiscal, monetary and external sector balance provided we adopt growth- oriented policies under a peaceful, orderly and democratic political environment,” said Mashakada.
The International Monetary Fund (IMF) recently urged Mugabe’s Zanu PF-led government to undertake bold reforms that include streamlining of the public sector wages to ensure the viability of the economy.
“The authorities need to take action to streamline public sector wages urgently,” IMF deputy spokesperson William Murray said.
“They also are encouraged to accelerate public enterprise reform, improve public financial management, develop key infrastructure and to strengthen the rule of law and to improve governance,” he said.
Renowned economist and former University of Zimbabwe lecturer, Tony Hawkins last week said the country needed an economic overhaul to correct economic imbalances and stimulate growth.
“The country has got a lot of imbalances ranging from unsustainable debt burden — increasingly domestic, unsustainable budget and balance-of-payments deficits, excessive reliance on foreign capital…
“The list is just endless and also includes unmanageable levels of poverty and unemployment exacerbated by job market mismatches, huge, growing infrastructure deficit, institutional decay — partly attributable to politicisation,” the economics guru said at a Confederation of Zimbabwe Industries roundtable meeting.
Hawkins pointed out that government also needed to “put its house in order to avoid total collapse”.
Another economist, Ashok Chakravarti, told delegates at the same event that Zimbabwe’s immediate solution was adoption of the South African rand.
“We need to adopt the rand immediately to solve the present pressing cash crisis. However, this alone is not enough. There is also need to balance budget and address high government wage bill.
“Yes, attempts to this have been there, but with wrong approaches. Before the wage bill can be rationalised, there is need for stakeholder dialogue and social contract as recommended by parliamentary portfolio committee on finance.
“The size of civil service must be cut, allowances trimmed, 13th cheque cancelled, and parastatals privatised,” he said, adding the country’s Indigenisation and Economic Empowerment Act needed to be repealed or fully amended.
Chakravarti also said government needed to “immediately” cancel the bond note project, with the facility of $200 million negotiated with the African Export-Import Bank utilised to increase liquidity in rand to the economy.
Zimbabwe has refused to carry out reforms on public sector wages, which continue to gobble a huge chunk of the budget. This has crowded out allocations to social sectors and infrastructure development.