ARE the wheels coming off again or has the economy suffered just a knock?
REPORT BY BERNARD MPOFU,ACTING BUSINESS EDITOR
This remains the inevitable question many would be asking as the election fever slowly fades.
The thought of reliving 2008, by and large the most painful year outside a war situation, is enough to send shivers down the spines of so many. Zimbabwe’s economy has had mixed reactions to the just-ended general elections.
While inflation has slowed down on the back of a weakening Rand, the Zimbabwe Stock Exchange (ZSE) seems to have taken a cough after the election sneeze.
For the second straight week, the ZSE main index — the industrial with over 60 counters — has been on a downward spiral, market capitalisation losing nearly $1 billion in just over a week.
Analysts say the soon-to-be formed Zanu PF government faces a Herculean task in inspiring confidence and turning around economic fortunes.
They say a headstrong approach on key policies that have been criticised for slowing down growth is not good for the economy.
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Seemingly aware of looming impeding economic challenges, the Office of the President summoned the country’s business organisations two days after the July 31 elections in a bid to ensure that the new government hits the ground running.
Business groups which include the Chamber of Mines of Zimbabwe, Zimbabwe National Chamber of Commerce and the Bankers’ Association of Zimbabwe made proposals to the President’s office.
The CZI advised the soon-to-be formed government to put on hold a blanket approach on the indigenisation and empowerment regulations, adding that the policy required more clarity to stimulate economic growth.
The writing is on the wall — the economy has been underperforming and the indigenisation and empowerment policy seems to be the elephant in the living room.
Due to uncertainty, panicky withdrawals have hit the banking sector before and after the polls and economic sectors remain underfunded.
Over $1 billion was taken out of the official market. In the midst of this, outgoing Finance minister Tendai Biti seems to be having the last laugh.
Biti, who at the start of the year said the economy had contracted by 3% during the first quarter, warned that a rushed election would further hurt the economy.
He warned that funding the July 31 polls using internally-generated funds could stifle economic growth, further worsening the liquidity situation.
Biti, the opposition MDC-T secretary-general, said Treasury had starved capital projects of funding to bankroll the electoral process after a plea to seek funds from Sadc failed to yield much.
The aftermath of an accelerated economic decline is what many may dread to stomach.
Zimbabwe may be forced to tighten its belt as the economy continues to underperform.
Facing pressure from a relentless civil service, President-elect Robert Mugabe has already promised uniformed forces a pay rise.
Economic and political analyst Brian Ngwenya says Treasury can only effect a salary adjustment on the civil service wage bill if government improve transparency on revenue inflows from gems.
Already, a bloated Parliament is expected to pile more pressure on the fiscus.
“Given that Zanu PF will be in full control of government, including the Ministry of Mines, an increase in the wage bill may only be possible provided more diamond funds find their way into the main conduit of government financial flows,” Ngwenya said.
“This can only happen if we take into account tight management of revenue, accountability and transparency.”
Analysts said if the government suddenly secures more revenue to fund the huge public sector wage bill as promised by Mugabe, then earlier claims by the outgoing Finance minister of an existing parallel government during the tenure of the just-ended coalition government could be true.
Currently operating with limited fiscus, the new Finance minister will have to strike that balancing act between populist measures and austerity given the trickling capital inflows.
Official figures show that government revenues have stagnated with recurrent expenditure accounting for 70% due to low business activity. Revenue collection during the period between January and June amounted to $1,807 billion against a target of $1,7 billion resulting in a positive variance of 0,8%.
Tax revenue accounted for 91% of the total revenue, while non-tax revenue accounted for the remaining 9%.
Revenue from diamonds according to Biti continued to underperform.
A salary hike for the civil service will not only reduce fiscal space, but expose the new government to the ills of the dollarisation which came through the back door.
A ballooning import bill currently trebling exports has further worsened the country’s balance of payment position.
Zimbabwe is also saddled with a $10,7 billion debt, which represents 103% of the Gross Domestic Product.
Government figures show that over 70% of this debt is accumulated arrears.
Zimbabwe has been defaulting on its international debt obligations since 1999.
An economist working for a foreign-owned bank who preferred anonymity said while the Reserve Bank of Zimbabwe assured the market of no immediate return to the Zimbabwe dollar, there was need to spell out specific parameters required to bring back the local unit.
The economist cited preconditions such as a $20 billion economy or three months import cover as some of the benchmarks required before the Zimdollar-comeback.
“The Zimbabwe dollar has by and large overtaken the land reform exercise as the most emotive subject in the country,” the economist said.
“While recent pronouncements by the central bank have helped ease nerves, the new government should be more specific through statutory instruments on the benchmarks required to reintroduce the new currency. As it stands, the pronouncements appear vague.”
Zimbabwe stopped printing money at the height of an economic meltdown which ended in 2009.
Runaway inflation and lack of confidence in the local currency forced the government to adopt the multiple currency, with the greenback being the preferred currency.
It would be interesting to see if the new Finance minister would maintain fiscal discipline or just be another bureaucrat directed by the whims of Zanu PF’s politburo.
Apart from demands from the civil service, the new man in charge of Treasury awaits fresh demands from farmer organisations keen on having more subsidies to stimulate agriculture, once the mainstay of the economy.
War veterans may also be knocking on the door demanding more for their welfare.