The Sunday Mail
Senior Business Reporter
The reforms that have been instituted by Government since September last year to restore sound macro-economic fundamentals have placed the economy on a firm foundation to support sustainable recovery, Finance and Economic Development Minister Professor Mthuli Ncube said on Thursday.
The Treasury chief said while prospects for growth this year were dim, after the economy was thrown off balance by a series of interventions to correct the ills of the past as well as the effects of drought and natural disasters, it was now on a stronger footing to support growth moving forward.
Sustained economic growth means the domestic economy will be in much healthier condition to create new jobs and contain inflation rate within tolerable range.
It also means Treasury can live within its means, borrow less, afford lower or less onerous tax thresholds, restore confidence and reduce import dependence.
Further, stability and growth enable Government to save resources for investment in key economic enablers such as roads rail and energy.
In Zimbabwe, inflation is driven by huge budget deficits recorded until 2018, financed through monetisation, which created high money supply growth.
However, elimination of fiscal deficits will curb money supply growth and, therefore, inflation. Too much liquidity has been blamed for driving demand for foreign currency on the black market, which has seen prices continuing to rise in line with the foreign exchange rate dynamics.
Zimbabwe has recently been experiencing unbridled demand for foreign currency (especially at one-to-one exchange rate between the bond note and the US dollar), because of sluggish growth due to low productivity in mining, agriculture and manufacturing.
This had quickly become unsustainable.
Resultantly, and as part of reforms the Government in February converted all bank and electronic balances, previously US dollars, into local currency.
Presenting his 2019 Mid-Term Budget Review and $10,85 billion Supplementary Budget, Minister Ncube said the first half of the year witnessed the implementation of bold and fundamental fiscal and monetary policy measures popularly known as austerity measures, supported by structural and governance reforms.
“Relentless commitment to full implementation of these reforms, void of policy reversals and inconsistencies has, as intended, set a solid stabilisation base for triple “S” growth — strong, sustained and shared growth,” he said.
And with an eye into the second half of the year, Minister Ncube announced a slew of measures to boost industrial, agricultural and mineral production through financing facilities, rebates on certain imports and reduction of royalties, respectively.
With regards to infrastructure and utilities, an additional $1,3 billion has been earmarked to cater for various projects in the energy, transport, water, public amenities, social services, irrigation and others.
Minister Ncube said this gives a total infrastructure budget of $2,5 billion, constituting 35,4 percent of total capital development budget.
The minister contends that milestones on the stabilisation front were now very positive and constitute a strong base for the advancement of other reforms, particularly regarding production, re-engagement and governance and other structural interventions.
“It is, therefore, now time to really focus on production, productivity, growth, poverty reduction and development, given that the fiscal and monetary policy issues are under control,” Minister Ncube said.
The reforms in the first six months of 2019, espoused under Government’s short-term blueprint called Transitional Stabilisation Programme (TSP 2018 to 2020), focussed primarily on containing the twin fiscal and current account deficits, which over the years instigated instability in the economy.
“The fiscal and current accounts are now balanced and under control, while the tools of monetary policy have also been activated — thus representing an essential and complete tool-kit for dealing with various macro-economic challenges facing the economy,” the Finance Minister said.
On account of improved fundamentals, monthly revenue collections for the first six months of the year generally performed above targets by an average of $139,9 million to give cumulative revenues of $4,99 billion, against a target of $4,15 billion, giving a positive variance 20,2 percent.
Total Government spending for the period January to June 2019 was $4,2 billion against a target of $3,7 billion, which is $532 million over-expenditure of 15 percent; only because of inescapable and unforeseen expenditures.
For the half year period, a budget surplus (savings) of $803,6 million was realised. The surplus, the minister said, clearly reflected entrenchment of fiscal discipline in line ministries and Government departments. Perennially, Zimbabwe’s current account has always been negative.
The current account deficit is a measurement of a country’s trade where the value of the goods and services it imports exceeds the value of the products it exports. A country running large current account deficit, with insufficient capital flows, is always at risk of seeing the value of its currency fall.
Minister Ncube also said strict adherence to sound fiscal and monetary policy reforms had allowed containment of domestic debt stock which stood at $8,8 billion as at end June 2019 down from $9,5 billion as at 31 December 2018.
This contrasts sharply with the dramatic increase in the domestic debt, fed by fiscal deficits of above $2 billion primarily financed by the issuance of Treasury Bills and central bank overdraft.
Going forward, the Government borrowings for budget purposes will observe the new TBs Auction Framework in order to promote transparency and the rebuilding of market confidence.
Zimbabwe’s current account, for the first time since the adoption of the multi-currency regime in 2009, registered a surplus in the first quarter of 2019.
A surplus of US$196 million was registered in the first quarter of 2019 compared to a deficit of US$491 million for the same period in 2018, constituting a major improvement in the current account.
Attainment of a fiscal surplus, Minister Ncube said, combined with a current account balance during the first half of the year, constituted a firm roadmap to confidence building much required by this economy.
Now that Zimbabwe introduced own local currency, the minister said, this had not only restored monetary policy but also created much scope for enhanced competitiveness of the country’s exports.