Government should restore dignity and credibility

June 30, 2022

Prof Gift Mugano

Zimbabweans are in deep trouble as the economy is characterised by near to total collapse of the education and health sectors, chronic inflation which is hovering around 191.6% as of June 2022, massive erosion of wages and salaries, shrinking of companies and incessant unemployment.

It is also facing rising poverty levels as the number of people in extreme poverty has shot from around 4.5 million people (29%) in 2018 to 7.9 million people (49%) in December 2020 and collapse of the Zimbabwe dollar.

Because of this reality, Zimbabweans are restless and all they hope and pray for is a quick remedy to the prevailing challenges.

Justifiably so, when the Minister of Finance and Economic Development Prof Mthuli Ncube called for a press briefing which was scheduled for the 27 June 2022, we were all quite anxious and expecting that our Minister was to present concrete measures aimed at arresting the current economic quagmire but alas it was not the case.

To the surprise of many, the Honourable Minister regurgitated the same policy measures which had been previously announced which inter alia include maintaining the dual currency, insistence on the need to use the interbank rates for pricing, 100% salary adjustment for civil servants and re-emphasising other non-financial benefits to civil servants which were previously announced in 2020.

There was really nothing new except the fact that the Minister of Finance and Economic Development has officially shut the door on de-dollarisation as he legislated dollarisation.

After the speech, market watchers and economic agents were very disappointed. We all thought that he was giving us an appetiser and the real meal was coming but alas he was done.

The disappointment amongst the audience I presume that it was very evident to the extent that the Minister of Finance and Economic Development was forced to constantly refer to the Monetary Policy Committee resolutions which had nothing to do with his speech. To say the least, the dignity and credibility of government has been tattered.

As part of the highlights of the press briefing, the Permanent Secretary of Finance and Economic Development stole the show by making serious and blatant lies to the public on civil servants’ salaries.

George Guvamatanga informed the house that there was no point in history when civil servants where paid US$540 per month.

In his argument, he pointed out emphatically that during the dollarisation period the exchange which was prevailing was ZWL$2.5 to US$1 which meant that civil servants were taking home an equivalent of US$216 per month.

His statements are in direct contrast with economic events in this country. Market watchers know that it was on 20 February 2019 when the government disbanded dollarisation after liberalising the exchange are. In this regard, the starting exchange was US$1 to ZWL$2.5.

Now, building on this, it was totally unnecessary and unacceptable for the Permanent Secretary to say those unfounded allegations on civil servants’ salaries.

In recent years, that is, from 2018 to date, I observed that there is deliberate move by Government, especially in the Ministry of Finance and Economic Development, to use go extra mile to paint a rosy picture even if at the cost of losing credibility.

For the benefit of the audience, the following are classic examples where the Ministry of Finance has given the nation false impressions:

 

(a)   Budget surplus, since 2019, the Minister of Finance and Economic Development religiously and emphatically told the nation that the national purse is in good hands and he is running a budget surplus, that is, the famous zvakarongeka (it’s in order). I personally argued on the contrary and today I am vindicated because the very same Minister is now asking the Parliament of Zimbabwe for condonation for excessive expenditure of about ZWL$6.7bn and ZWL$102bn in 2019 and 2020, respectively. The readers may need to know that the budget for 2019 was ZWL$8.1bn and the Minister exceeded the very same budget by ZWL$6.7bn to which is now asking Parliament to forgive him.

Likewise, in 2020 the expected expenditure in 2020 was ZWL$63bn but the Minister exceeded this by ZWL$102bn to which he is now requesting the parliament to forgive him. Obviously, looking at this trend, we are very certain that condonation for the 2021 financial year is in the pipeline.

(b)   On 25 June 2019, the Minister of Finance and Economic Development hurriedly introduced the ZWL and argued that the country has the right fundamentals to support the local currency

I was the first economic analyst to comment on this move on a local radio and argued we will go back to dollarization in 9 months, that is, by March 2020 something which came to pass.

(c)    In November 2021 at pre-budget consultations in Victoria Falls, as a discussant to the presentation of the Minister of Finance and Economic Development and the Governor of Reserve Bank of Zimbabwe, I challenged the Minister of Finance to present his budget in United States Dollars since the economy was dollarizing.

I predicted that by June 2022 annual inflation will exceed 100% and exchange rate will exceed ZWL$400 to US$1 and, in my view, this will push the economy into dollarisation.

The Honourable Minister argued that the ZWL will be a strong currency in 2022 and he predicted that inflation developments will be in the region of 25-30%.

In order to support his desire for the use of ZWL, I challenged the Minister of Finance and Economic Development to exclusively use the ZWL as the only currency for all Government transactions.

In simple terms, this would require Government to totally divorce itself from payments in USD.

In this regard, all economic agents will pay all taxes in ZWL using the prevailing exchange rate. What it will do is very simple — it will force economic agents to keep ZWL for payments of taxes and government services thus creating value and demand the ZWL.

If he had adopted this measure, we would have saved the ZWL from excessive depreciation.

Again, the Minister rejected the proposal because his Government loves USD.

Ironically, President Putin used the same policy measure when he directed the European Union member states to pay for oil and gas using Rubles and this has seen the Rubles being one of the best performing currency in the world.

Of interest for the readers is the fact that, notwithstanding the refusal by the Minister of Finance and Economic Development to present the budget in USD, he started paying civil servants’ bonuses in November 2021 in USD.

Likewise, in January 2022, he started paying COVID-19 allowances and pensioners in USD.

In addition, in February 2022 he announced payment of part salaries in USD and in the last few weeks, 30% and 50% of maize and contractors, respectively are now paid in USD.

This is clear admission that the economy is dollarising and our Minister is being forced by the market to accept this reality.

(d)   Economy not in a crisis — in recent weeks, including during media briefing on 27 June 2022, the Permanent Secretary of Finance and Economic Development together with his Minister emphatically argued that the economy is not in a crisis.

Questions which arises here are: if the economy is not in a crisis, why is the very same ministry is in a fire — fighting mood using several statutory instruments and weekend press statements?

When inflation is now stood at 191.6% as of June 2022 and the local currency has depreciated to ZWL$700 against US$1 what do we call this?

If our national budget has shot from ZWL$8.1bn in 2019 to ZWL$960bn, that is, 11900% in four years, what do we call this? If our health and education sectors are in a very bad situation without basic drugs, consumables and with lowly paid staff what do we call it? If people in extreme poverty (national) have risen from 29% to 49% and people in poverty in the rural areas has risen to 70%, are we not in a crisis?

Building on these observations, the Government of Zimbabwe must understand that Zimbabweans, being educated people, will not be fooled.

They may not say anything but all human being are rational economic agents which uses available information to make decisions which helps them to maximise their returns. The question which arises here are as follows:

Building on the facts above, is the information which I presented here, that is, the flip flop in Government policies going to positively influence economic agents to drive the economic agents in the direction Government wants? The answer is no.

This is why Government is right when they say that the country suffers from confidence deficit.

Going forward, in view of the observed trajectory on policy missteps and uncalculated policy announcements, the Government of Zimbabwe must take a deliberate Government position to:

(1) Confront the reality in Zimbabwe as it is and accept it as it, for example, we have an economic crisis — we must accept it as it is and work with all economic agents to provide remedy;

(2) Refrain from excessive press statements, issuance of numerous statutory instruments, minimise media briefing especially when there is nothing new to say;

(3) Desist from a blame game where the business sector is apportioned the blame of the economic quagmire when government has a significant contribution to the same;

(4) invest in technocratic and all-inclusive as well as demand driven policies;

(5) diagnose the root causes of economic challenges in Zimbabwe and provide solutions build on the theoretical and empirical underpinnings and stop addressing symptoms as in the current case.

 

Professor Gift Mugano (PhD) is an Adjunct Professor of Economics at the Durban University of Technology, a distinguished scholar, global authority on International Trade and Finance and a technocrat with over seventeen (17) years of extensive experience including lecturing, research and publications, policy advisory and consultancy work. He has published three books with renowned international publishers, that is, Routledge, Palgrave Macmillan and AOSIS, respectively: (i) Trade Liberalisation and Economic Development in Africa; (ii) Special Economic Zones: Impact on Economic Development in Africa; and (iii) Perspectives on Comprehensive Internationalisation of Higher Education.

Related Articles

0 0 votes
Article Rating
Subscribe
Notify of
0 Comments
Inline Feedbacks
View all comments
Back to top button
0
Would love your thoughts, please comment.x
()
x