The Sunday Mail
Christopher Mugaga
THE 2019 national budget is coming against a backdrop of too much liquidity.
For years, Zimbabwe has suffered from a liquidity crunch, especially in the domestic market but if you look at broad money supply, it has gone up to US$9,5 billion. However, the stock of liquid cash in notes and coins is US$350 million.
This huge gap has to be corrected.
The question is how to neutralise so much liquidity, which is now causing inflation as recently shown by the October 20 percent inflation rate.
In the upcoming budget, Government must not be afflicted by the Moral Hazard — where they get excited to expand more as they are generating more.
We are expecting a budget that is inclusive in dealing with the informal sector.
More than 60 percent of the economy is informal. Zimbabwe is said to be the third most informalised economy in the world.
That alone shows that it can’t be business as usual.
Therefore, this budget has to make interventions to bring into the net the people who are in the informal sector. Their businesses need to be formalised. This is the reason why Government came up with the 2 percent intermediated tax.
We also hope that the Finance Minister will give a new direction in terms of Command Agriculture. Although the scheme has been successful in increasing maize production and ensuring food security, it might not be sustainable. For example in the first half of this year, about $1,8 billion worth of Treasury bills were issued by Government. About $400 billion of this went towards Command Agriculture. This means if the farmers fail to own up on the credit, it will reflect as Government spending.
The currency conundrum is a reality as we move towards 2019. Zimbabwe’s bond note and RTGS 1:1 pegging against the US dollar is no longer sustainable. This is a confirmation that we are no longer dollarised as we were. What is now coming up is a local currency economy and we don’t expect a budget below US$10 billion.
We also expect this budget to articulate how privatisation of the 114 parastatals is going to take place. There are certain parastatals that Government intends to merge and I have reservations on some of the mergers.
For example, the Competition and Tariff Commission is earmarked to merge with the National Competitiveness Commission, and I certainly don’t think this is a good move because these are two different bodies. What is needed is to capacitate these institutions in light of the pricing cartels.
Building confidence
I also have a problem with the calculation of inflation.
We need to strengthen Zimstat so that they give accurate figures of what is on the ground.
While most companies are posting results, these results need to be adjusted according to proper inflation rates so that we get a proper view of how they are performing.
Minister Mthuli Ncube should also look at ways of capacitating the Reserve Bank of Zimbabwe, given its role in funding Government’s budget deficit.
We also want a Parliament that will be strong in approving expenditure; not one that just rubber stamps everything.
There is also the issue of lines of credit. These have been dry, particularly in the manufacturing sector.
It is also important for Government to involve the private sector whenever negotiates with creditors.
The market needs to trust the presented figures so that confidence can be built. Every institution needs to effectively play its function.
Illicit financial flows
The gold sector alone could be losing US$50 million every month as a result of illicit financial flows. Capacity utilisation is around 40 to 45 percent for gold production and artisanal miners are producing the most. This shows that there are illicit financial flows. There is also under declaration of invoices. I don’t believe that the artisanal miners are producing more than the larger producers.
A new way of dealing with foreign currency challenges
The prevailing foreign currency problems are not a new phenomenon. However, what is worsening the problem is that we have been using foreign currency as local currency.
In Nigeria, they have a foreign currency system where different exchange rates are used for different purposes. For example, there is an exchange rate used for school fees payments, an exchange rate for industry and an exchange rate for the oil sector.
They have allocated the foreign currency market for different industries and if you are a player in critical industries, you access the foreign currency at a different rate, without the central bank coming into play.
The RBZ does not generate foreign currency and the more the market is not comfortable with the manner in which the central bank is allocating foreign currency, the more foreign currency will go underground and the more the RBZ will struggle to allocate foreign currency to different sectors of the economy. The moment an industry player gets foreign currency at 1:1 when the currency is not in fact 1:1; that means you are subsidising them at the expense of critical imports.
Mr Christopher Mugaga is an economist and chief executive of the Zimbabwe National Chamber of Commerce. He shared these views with The Sunday Mail’s Chief Reporter Kuda Bwititi in Harare last week.
