The Sunday Mail
Kudakwashe Mafigo
Planning for the future is a central part of economic life.
The conventional view is that spending depends partly on how large or small consumers expect their future income to be.
In economics, expectations cause economic fluctuations, mostly driven by varying demand shocks.
Expectations are, therefore, defined as the set of assumptions people make about what will happen in the future.
These assumptions guide individuals, businesses and governments in decision-making processes.
Hence, the obtaining situation where there is an upsurge in consumer expenditure, a spike in foreign currency demand, and stock-outs of basic commodities is a manifestation of what both business and consumers expect about the future of the recently announced Monetary Policy Statement by Reserve Bank Governor Dr John Mangudya, and fiscal interventions introduced by the Finance and Economic Development Minister Professor Mthuli Ncube.
With past memories still fresh in people’s minds, any attempt by Government to introduce a new policy will naturally lead to various expectations that are shaped by people’s own interpretation of Government policy.
But the risk about expectations is whether what people anticipate to happen does occur.
A misinterpreted forecast might have unintended consequences on people’s lives.
The recent panic buying of basic commodities by consumers, as well as a rush in converting all their RTGs balances, including bond balances into US dollars, which led to increased prices of both goods and services, was mainly caused by expectations.
Likewise, businesses also form expectations, which largely inform how they price their goods and services.
Overall, both individuals and businesses make informed guesses about circumstances and then base decisions on these expectations.
The major turning point for the local markets was the various policies made by fiscal and monetary policies on October 1.
The two major policies — of separating FCA accounts for Nostro and RTGS funds and introducing a new intermediated money transfer tax — were interpreted differently, and in some cases wildly.
Government’s intention is clear: it is trying to boost exports through incentivising exporters by ensuring that they have full access to their foreign currency.
Further, Treasury is trying to expand its the tax base by including the informal sector.
Proceeds from the new tax will be earmarked for capital expenditure projects (road rehabilitation, energy and water) and social expenditure programmes (health, education and sanitation).
But consumers and businesses seem to have interpreted Government’s intentions in a negative way.
For example, the decision to separate accounts was viewed as a precursor to devaluing RTGS funds and bond notes, while the two percent tax was perceived as a fundraising exercise to meet Government’s gluttonous appetite.
Consumers
So, recent developments on the economy are just a manifestation of consumers’ mistrust and lack of confidence in Government’s ability to protect their hard-earned money.
The exponential demand for goods and services was taken by retailers as an opportunity to exploit consumers and profiteer.
Already, with limited disposable incomes, panic buying has since induced demand-pull inflation.
It is not the monetary or fiscal pronouncements that led to price increases, but it is rather consumer expectations and interpretations of policy measures that were introduced in the market.
Consumers are, however, cautioned to avoid wasteful and unnecessary expenditure.
Citizens should nevertheless demand transparency in the use of taxpayers’ money.
We all agree we need a better Zimbabwe, but a better Zimbabwe will only come if we all contribute towards Government efforts through paying taxes.
This is what nations like South Korea did to be where they are today.
Business
Upon realising the rising demand for goods and services, local businesses found the opportunity to hike prices so as to reap from the ordinary, poor consumers.
Ironically, despite hiking prices, businesses haven’t effected a corresponding review of wages and salaries for their own employees.
Business needs to support Government efforts through being responsible corporate citizens.
Irresponsibly hiking prices is not always the smart thing to do for businesses, as this creates a vicious circle, especially when employees begin demanding salary increases in order to match the rising cost of living.
Government
Quite clearly, recent developments in the economy are a manifestation of lack of trust and confidence.
Usually consumers and businesses make rational expectations by hedging against possible negative impact arising from a change in Government policy.
Government, therefore, has a big role to play in bringing back that lost trust and confidence through ensuring that there is:
◆ Engagement with all stakeholders before major policy decisions are made so as to avoid despondency by the public and ensure policy buy-in for smooth implementation process;
◆ Transparent and accountable use of Government resources. Transparency and accountability must be practised not preached;
◆ That Government, Labour and Business come together in a social contract arrangement so as to avoid contradictory efforts, and ensure everyone puts the interests of the nation first; and
◆ No unnecessary policy discord coming from the ruling party, other Cabinet Ministers or the ruling party’s Youth League. If this discord is allowed, it may worsen the situation as people and business to continue revising their expectations.
Taxes are not the issue, but how they are used for the benefit of the taxpayer is.
Sweden, for example, has very high taxes at around 60 percent of income tax. But the Swedes are happy to be taxed at that high rate simply because their government is not only transparent, but it provides the necessary quality goods and services that the people want.
Kudakwashe Mafigo is an economist. Feedback: [email protected]
