TINASHE NYAMUNDA/ HAPPINESS ZENGENI
Throwing monetary solutions at economic problems is nothing new in Zimbabwe’s economic history. In 1981, the Zimbabwe Conference for Reconstruction and Development (ZIMCORD) was held to raise money required to finance economic development. There was excitement about the new independent country then and this was seen through the successful raising of US$3 billion that Finance Minister Enos Nkala and Economic Development Minister Bernard Chidzero (https://www.youtube.com/ watch?v=9K5uxitJW78) felt would be sufficient to put the country on a sustainable development trajectory.
However, the economic blueprints of Growth with Equity and the Transitional National Development Plan culminated in the government needing more money from the International Monetary Fund and this resulted in Zimbabwe adopting the disastrous Economic Structural Adjustment Programme by 1990; the effects of which the country never recovered from as has been well studied by various scholars. The raised funds were simply consumed and the country acquired more debt. In fact, all of the plans which were to follow even after 1981 were then adopted from long standing political culture that enforces bad fiscal practices.
Why? Because the problem is not monetary! The monetary challenges in the country are a painful symptom of the Monetary solutions to economic problems are what brought us here problem and emanate largely from political spending. As it is currently, the Reserve Bank of Zimbabwe is just an overdraft institution for bad government spending. Ever since dollarisation the country has been attempting to fix its problems using monetary solutions. However, as many have for long been advocating, including the governor himself, the solution is connected to production! Put people to work, produce, sell and then get the money! Forget the reforms if you do not put the country to work. No matter how much money you put in the economy, whether it is the $27 billion that some estimate would bring the economy back to equilibrium, or even more, if the country is not producing, forget it! It will simply consume the money and get into even more debt! Perhaps it is in this light that the move by Finance and Economic Development Minister Mthuli Ncube to announce fiscal measures at the same time as the MPS, could signal a shift towards correcting this. In his parting statement, which he personally believes was tough talk, RBZ governor John Mangudya admits that the measures he presented would need to be supported by a package of measures to reduce fiscal imbalances that are exerting pressure on money supply and hence inflation as a result of increased Zim pushes for deal with creditors consumer spending which in turn requires increased foreign currency inflows. The country needs to live within its means Mthuli’s great plan to capture the informal market?
For the Government to set itself to achieve any semblance of fiscal balance, the new Finance Minister quickly announced a new tax of 2 percent for every dollar transacted. Going by the current levels of transactions within the economy, this would result in revenue of some RTGS $3,5 billion. But given that in a single stroke, they have subjected other non-foreign exchange monies to inflationary pressure because of the separation from FCA, even this is unworkable. The attempt to reign in the informal sector in this way is ridiculous as the players will simply just pass on the cost to the consumer who will bear most of the brunt of government revenue targets. These policies, to say the very least, are not people-friendly and neither will they yield the aspired solutions.
Reining in the informal market?
The government’s financial authorities are deluding themselves if they think that the measures they have announced have the capacity to rein in the informal market. First, separating FCAs from RTGS balances will only accelerate rather than slow down the parallel currency market. It makes all these other forms of money worthless. This is a veiled admission that an exchange rate actually exists in real terms, otherwise, there would be no need to do so! His explanation that this is to not discourage exporters is unconvincing.
Moreover, Mangudya and Ncube, went further to tax intermediate money transfers including mobile money, cell phone and all sorts of money movements to try raise more revenue for the state. The other explanation was to try and rein in the informal economy which they have no direct methods of extracting from.
If anything, most informal sector traders buy their products from South Africa and sometimes Botswana. Most of what they sell is imported and the government cannot possibly provide them with the foreign exchange they require to keep them in business. If the object is to drive their market into the ground or slow down their activities in favour of boosting the formal market, then their only option is to put these people to work. The informal sector will continue to thrive and formal sector will soon begin to face numerous viability challenges because of the structural misalignment just introduced into the economy. Both the RBZ Governor and the Minister of Finance’s diagnosis of the problem and their proposed solutions are seriously erroneous. Not only should they rethink their approach, but they now need to really consult widely in order to get to the real issues to be addressed. If anything, the outcry following the announcement of Dr Mangudya’s statement is a strong indication that many Zimbabweans are fully aware of the challenges that confront the country and the solutions suggested are untenable. Everything boils down to the need to improve production.
If the erstwhile financial authorities pursue the production agenda, they would need to confront the politics of state capture in the major primary industries of the country. How will they confront leakages in, for example, mining where high ranking politicians have huge interests? How do they regularise production to insure that all what is sold is captured through proper fiscal channels to ensure revenue is not hemorrhaged out of the country through the various smuggling and laundering methods? How do you retake all of those sectors that have been parcelled out to influential politicians who control them and profit irregularly, outside proper fiscal channels? How do you retain money locally to build capacity for capital and economic expansion?
