In the mid-term fiscal policy review of 2016, Finance minister Patrick Chinamasa proposed to cut 25 000 jobs by December 2017 arguing it would save $155 million annually; freeze civil servants bonus for the next two years to save $180 million and also to close some embassies. Gross Domestic Product (GDP) of 2016 forecast is at 1,2% from the initial projection of 2,7%. Revenue for 2016 is at $3, 755 billion down from $3, 85 billion of 2015. Budget deficit reached $623, 2 billion in the first half of 2016 against a full year projection of $150 million and the deficit is now seen to be at over $1 billion at current expenditure levels.
Opinion: Blessing Machiva
The government has however, sabotaged these reform measures by overturning his proposals to cut salaries and suspend bonuses for civil servants. It’s now the second time that the government has reversed the minister’s policies, a move that further dents investor confidence. One wonders whether any consultations are done before these policies are announced to the public. These policy inconsistencies are embarrassing and they are a sign that there is no hope for economic reform in Zimbabwe, not in the near future. The government is divided.
The Finance minister spoke of cutting jobs and introducing taxes on civil servants’ allowances in order to save less than $400 million annually for development purposes when the loss of $15 billion from diamonds is still fresh in our minds. To cut jobs is to go against the most despised and failed economic policy, Zim-Asset, that aimed at creating about 2,2 million jobs by 2018. However, the contrary has happened as companies closed and are still closing down and the remaining ones had laid-off workers, to create 2,2 million vendors instead. To defend Zim-Asset saying the vendors that mushroomed in most parts of the country’s cities are part of the jobs that the government has created would be to overstretch it. A rational economic agent would not become a vendor by choice if that person is holding the qualifications that would give one a good job in the formal sector. We have seen numerous battles between the police and these so-called vendors.
The minister is planning on adding 25 000 people into this pool of vendors by December 2017, a move that would further impoverish people. It seems the government is now obsessed with paying civil servants and it would blame these hard-working employees for gobbling a whopping 96,8% of the collected revenue in wages. In order to reduce the budget deficit, the minister proposed cutting their wages, which he did late last year in the name of pensions and now he wants to play that same old trick again through levying taxes on civil servants allowances. The minister is forgetting that elections are near and the bosses will not accept his policies that might exacerbate social unrest.
Now that the government refused to cut salaries and to suspend bonuses like what the Finance minister wanted, so what next? Where is the government going to get the money to foot the civil service wage bill and to pay bonuses? This is coming in the same period when the Reserve Bank of Zimbabwe governor John Mangudya is planning to introduce bond notes end of this month as a form of export incentives. Government revenue collection is decreasing and budget deficit is now targeted at above $1 billion, and in addition there are food shortages in most parts of the country and it requires the government to intervene to provide food relief, not forgetting the coming 2018 elections that will need to be funded. In the face of all this pressure, will the governor resist the pressure to print more bond notes?
The monetary authorities might want to allay peoples’ fears and rejection of bond notes arguing that it is based on speculation, but its speculation that is dangerous and that causes policy invariance or policy mutation. Economic agents are not passive policy takers, but they are active participants with a stake in government policy formulation. People do not want bond notes no matter how authorities might defend them and introducing them. I have heard so many times those in offices claiming that Zimbabwe is a democratic nation where people are free to air out their views, let us test this claim on this bond notes issue because from my own observation, it’s quite clear that the nation has rejected them.
It was not very clear why the monetary authorities refused to adopt the Rand as a trading currency. I understand that the United States dollar is overvalued and its difficult to sell the output, whose costs has been paid in US dollars, in another currency. The exports will not be competitive in the international market. Adopting the Rand as a trading currency and then allow the US dollar to be just a reserve currency would do our economy good. We can still pay those export incentives in the form of Rand unlike going for the much-criticized option. South Africa is our major trading partner and the reason why the monetary authorities are disinclined on adopting the Rand is clear — they can’t print it!
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The current ongoing lawsuits against the government on the bond notes move are disastrous towards the success of the policy. They are causing great harm to the little confidence that had been built in the market towards bond notes. I would advise the monetary authorities to drop it, and opt for something else. Although the policy might seem to work from the perspective of the policy makers, the fact that the nation has rejected them, then their introduction in the face of public resistance is disastrous.
The Finance minister was silent on the bond notes issue in his mid-term fiscal policy review pointing out that Zimbabwe will continue to use the multi-currency system ,but I am quite convinced that in the face of dwindling revenue levels; the pressure to foot the civil service wage bill and bonus and pressure to reduce the external debt of over $10 billion that has its 80% in arrears, the monetary authorities are not going to resist the need to print more bond notes. This might take Zimbabwe to the worst economic crisis of 2008.
The bond note era and the period after is uncertain and this is making it difficult for economic agents to plan and budget, investors would certainly adopt a wait-and-see attitude. The nation has long-waited for powerful economic reforms that would revive the country to the same jewel of Africa it once was in 1980. One would not need an economist to explain that the current problems that this nation is facing are deep-seated in the structure of the economy and that bond notes introduction is far from being the best solution.
I know those who claim to be intellectuals would criticise these views in the name of “bookish economics” but I question the type of economics they are practising. I still remember in 2006 when the then powerful Finance minister Herbert Murerwa was blasted when he had called for the end of quasi-fiscal activities, which he argued would fuel hyperinflation and kill the local currency. The government claimed that it was bookish economics at the Ministry of finance and that Zimbabwe was under sanctions and the expenditures were necessary but we can all testify what later happened in 2008. Then what is better, bookish economics or economics that is devoid of microeconomic foundations and that is aimed at pursuance of political agendas at the expense of economic stability?
Blessing Machiva is an economist and he writes in his own personal capacity. Criticisms and comments can be forwarded to [email protected] or WhatsApp +263 773 836 435
