The Sunday Mail
Clemence Machadu : Insight
Howdy folks! Austerity by its very nature is controversial and stirs a good share of brouhaha.
| It entails belt-tightening measures that are usually guaranteed to cause despondency and discomfort. |
This is why we have recently witnessed mixed reactions to the measures spelt out in the Mid-Term Fiscal Policy Review Statement announced by Finance and Economic Development Minister Patrick Chinamasa on September 8, 2016.
In interrogating whether the review successfully managed to draw the line of best fit between good austerity and bad austerity, I wish to put certain things into perspective.
First, the International Monetary Fund conducted awkward actions beginning a week prior to the presentation of the statement.
Briefing the Press on September 1, IMF spokesperson Gerry Rice reiterated something that he had said two months ago about Zimbabwe.
Although no one had asked a specific question about Zimbabwe there, Rice just had to say this, “I just want to clarify as I’ve done here before, there is no financing programme under discussion with Zimbabwe at this point . . . Once the (outstanding) arrears would be cleared (by Zimbabwe), the IMF’s Board would need to meet and approve the normalisation process and any programme negotiation. Financial support from the IMF could only begin at that point.”
Rice repeated the same message three days ago when Reserve Bank of Zimbabwe Governor Dr John Mangundya was presenting his Mid-Term Monetary Policy Statement.
Really, why is there so much interest in Zimbabwe in this season?
Is the IMF trying to scare Zimbabwe, kind of whip it into line to implement the “sanctions” (conditions) it imposed on the country?
In his statement, Minister Chinamasa highlighted that re-engagement with the IMF will be guided by the Programme for Accelerated Economic Transformation that Government has formulated.
And topping that programme are public sector finance management reforms, the very reforms, some of which Cabinet has rejected, citing their “not friendly operativeness”.
Whether there were procedural anomalies in announcing some of the measures that were already rejected by Cabinet or not, the fiscal policy review had proposed a number of belt-tightening measures.
These included reducing Civil Service salaries and allowances by up to 20 percent, starting with deputy directors and ministers, foregoing 2016 and 2017 bonuses and taxing allowances.
It also targeted slashing Government employment costs to about US$219 million per month by December 2017, from current monthly trends of US$314 million (according to May 2016 employment bill).
The review further targeted a wage bill of 50 percent of total revenue in the medium term.
The only problem is that the fiscal policy does not intend to achieve that by increasing revenue until wages are 50 percent of that revenue. Rather, it intends to cut wages until they are 50 percent of the current revenue thresholds!
Why is that not a good thing?
We should understand the above in the context of at least three realities.
First, the fiscal policy review said that one of the urgent priorities it is targeting relates to poverty reduction.
Second, it said that one of the downside risks undermining the performance of our key productive sectors is the “resultant overall fall in incomes and weakening of domestic aggregate demand”.
Third, it is one of the 2015 Confederation of Zimbabwe Industries survey findings that low local demand is the biggest capacity constraint.
Against the above background, cutting wages and salaries would be only worsening the above three things.
You don’t lessen poverty by cutting incomes, you actually worsen it!
You don’t boost demand by cutting incomes, you actually make demand impotent. You see, cutting incomes is cutting spending power!
And cutting spending power is actually further cutting the already low demand, which, in itself, has further adverse consequences.
You see, folks; the production of goods and services has a signalling function aspect to it.
It is demand that informs manufacturers on what to produce and the quantities of such.
If demand diminishes, manufacturers will get a new signal to cut down on production, and capacity utilisation declines – not to mention employment.
You, therefore, cannot cut wages with the hope of increasing production.
It is hoping against hope!
The fiscal policy review says that by foregoing the 2016 and 2017 bonus, it will accrue savings of around US$180 million per annum “which will be channeled towards essential expenditures relating to drought”.
Why can’t the individual remain with that income so that they maintain spending power to withstand drought on their own?
And are we also assuming 2017 to be a drought year already?
Again, wasn’t it going to be unheard of for an African ruling party to forego 2017 bonuses, about six months before the elections?
I remember early 2000 when civil servant salaries were actually increased by between 69 and 90 percent, with elections only six months away.
The bottom-line, though, is that President Mugabe clarified a similar issue in 2015, saying that when Government bestows a benefit on civil servants, it cannot be withdrawn because it has become a right.
So, austerity measures that try to strip someone’s rights are misguided.
We are a rich nation, actually the richest country in the whole world in terms of resources per capita and it really must embarrass us to say we can’t reward our civil servants.
If we are to choose to cut civil servant incomes, the best we should do is replenish their dwindling spending power with resources. For instance, why not offer them land or mining claims and then forego bonus for the next three years?
Who would dare go in the streets to protest against such an offer?
This is the time to rely more on our resources, to think creatively about how to optimally utilise them to unlock undreamed of opportunities and possibilities for our heartland.
The fiscal policy review spoke about leveraging mineral resources to secure financing for various development projects.
It, however, did not give specifics in terms of timelines and figures that are being targeted.
Folks, we have talked enough and for long about this and now is the time for action.
We can’t continue to be beggars sitting on a gold mine.
In its policy advice, the central bank also weighed in on this subject, speaking about the need to leverage and securitise the country’s vast resources to obtain capital for development and to close the fiscal deficit.
Folks, this is the way to go as opposed to trying to cut the already low incomes with a view to creating fiscal space for CAPEX.
Going forward, there is also need to increase the speed at which important pieces of legislation with potential to spur investment are crafted.
We want foreign aid, and that is quite spelt out in the fiscal policy review’s theme “Improving Investor Confidence to Enhance Productivity”.
Folks, one thing that has been uppermost in most foreign investors’ minds is the inconsistent nature of the indigenisation policy.
President Mugabe chipped in, clarifying the contentious issues around the indigenisation and empowerment policy.
Government is, however, yet to amend the Act so that it is in harmony with the President’s proclamation.
It’s now five months down the line and the key law is still being amended.
Many foreign investors are still taking a wait-and-see approach and can only make bold decisions about investing in Zimbabwe after these amendments are gazetted.
Even foreign companies that are operating in Zimbabwe cannot make further investment commitments until the President’s clarifications are given legal effect.
Folks, as our economic kite continues to dance in the tempest, may those who are running while holding its rope always stay alive to the fact that misguided austerity is futile to hope and should be replaced with rational solutions that are informed by the fact that we have resources in utmost abundance.
Good austerity should be separated from bad austerity.
Otherwise we may tighten our belts until our waists become like that of a wasp without any economic growth and development being registered.
Later folks!
