HomeOpinion & AnalysisColumnistsMonetary, fiscal policy implications for agricultural financing

Monetary, fiscal policy implications for agricultural financing

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In the previous installment, we discussed the link between the Reserve Bank’s monetary policy statement and the Ministry of Finance’s fiscal policy review in relation to financial sector developments.

In this installment we focus on how these two pillars of the broad policy framework talk to each other in relation to agricultural financing.

FSS’s rationale for focusing on policy implications for the financing of agriculture ahead of other sectors is three-fold.

Firstly, this column focuses on banking and financing initiatives, of which a significant portion are in the agricultural space as we shall see later in the article.

Secondly, projected gross domestic product growth of 9,3% for the current fiscal year will be driven mainly by mining followed by agriculture, expected to grow by 19,3% in 2011.

Thirdly, and probably most importantly, a conducive policy environment is a must for sustainable agricultural development. And development — we should be reminded — is never inevitable or random; it always follows clearly discernible paths.

Consequently, experts generally agree that development paths today require much more strategy, focus and coordination.

Budgetary and complementary support
The monetary policy statement calls upon the government to double efforts to finance the agricultural sector through activities such as research and development, input and chemical schemes, farm mechanisation enhancement and provision of extension services.

The stark reality, however, is that the fiscal space is way too narrow for any meaningful manoeuvres and resultantly the 2011 Budget of $2,746 billion only manages to provide a measly $16,6 million (1%) for agriculture.

This is rather underwhelming in the context of the Maputo Declaration which envisages 10% of the Budget being set aside for agriculture.

This means that 99% of the resources required for financing agriculture in the 2011/2012 season are off-budget and must come from other sources such as the banking sector, development partners and external lines of credit.

Clearly, this calls for a coordinated effort by these private sector players.

In previous years, Zimbabwe, however, did quite well in terms of complying with the Maputo Declaration.

It will be remembered, for instance, that of the $505 million worth of Special Drawing Rights (SDRs) received from the International Monetary Fund in 2009 as a rescue package following the global financial crisis, the government allocated $50 million (10%) to agriculture.

The fiscal authorities however, note with concern that the “huge resources” committed to agriculture to date have been without a commensurate impact on productivity.

Notably, between 2009 and 2011, the government together with international cooperating partners and private financiers committed a total of $1,9 billion to agricultural financing, of which direct budgetary support amounted to $552 million. This state of play begs the question: Why has agricultural performance been characterised by such a disconnect between intent and outcome?

Structural challenges

The fiscal authorities put it down to “structural challenges in our agriculture that are resulting in low productivity and wastage” and highlight the imperative to decisively address them. A typical structural challenge identified is “the absence of a viable accumulation model beyond mere production of raw goods in agriculture.”

This means that the policy response must be one that promotes beneficiation and value addition of primary agricultural commodities.

When all is said and done, contend the fiscal authorities, the policy framework must recognise the obligation to create a comprehensive agricultural recovery strategy, if the agricultural sector is to be transformed.

Such a strategy envisages the establishment of a reliable and consistent private sector model of financing agriculture as well as dealing with other structural issues such as finalisation of the land reform programme and the Land Audit, resolving issues of compensation all of which should lead to the awakening of “dead capital” through the restoration of the land market.

Only then can meaningful lending to the sector resume. The monetary authorities have now seen the light and attribute agricultural underperformance to “the current piecemeal approach to addressing challenges facing the sector”.

Though the monetary and fiscal authorities use different terms to describe their visions, as do many other stakeholders in the agricultural value chain (such as the Commercial Farmers’ Union who in their paper titled Seeking Agricultural and Economic Recovery in Zimbabwe, simply call it “The Way Forward”), they both acknowledge the need for a broad strategic planning framework in agriculture. Such a framework can, however, only emerge from a participatory, consultative approach to dialogue premised on partnership.

Sensibly, the Reserve Bank also suggests that budgetary allocations for agriculture must take cognisance of the different products and seasonal cycles in agriculture, so as to cater for the different financing and support needs for the winter and summer crops.

Weigh in with your insights on omen.muza@gmail.com.
Omen N. Muza is a banker and managing director of TFC Capital (Zimbabwe) (Pvt) Ltd who writes in his personal capacity.

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