The Sunday Mail
It is that time of the year when the Finance and Economic Development Minister and central bank governor prepare their mid-term policy reviews.
I am sure there are plenty of discourses taking place in different spaces, all feeding into these important policy reviews.
We have lately heard that the central bank may soon be calling members of the public to surrender Zimdollar notes in their possession in exchange for US dollars as part of demonetisation, whose initial deadline is June 30.
Fellow economists have done well in clarifying that this does not mean that the monetary authorities will bring back those highly-denominated Zimdollar notes into circulation.
What those economists didn’t perhaps underscore is the fact that demonetisation of the Zimdollar is about both balances held in banks as well as notes gathering dust in closets.
People did not raise alarm bells when the governor told us in January that all Zimdollar bank accounts will be credited with a flat sum of US$5 to demonetise the balances in them.
It only became a problem when people recently heard that the Zimdollar notes would be exchanged for US dollars. Then the talk about the return of the Zimdollar went viral.
But surely, how can the monetary authorities return the very money that they are clearly demonetising?
That the central bank is not only refunding bank account balances, but those with notes, too, is a clear sign of equality.
This way, my grandmother kwaBenzi who didn’t have a bank account but was also affected when we dollarised as she was left stuck with bricks of useless notes, can also be compensated.
This makes the whole process indiscriminate, you see.
The only complaint I was expecting members of the public to raise, but surprisingly didn’t, is that the money to be paid in US dollars, by the monetary authorities, is too low.
For instance, it is said monetary authorities will pay US$0,40 for a Z$100 trillion note that is being bought for as much as US$30 elsewhere by those who are buying old notes for God knows what reason.
But I guess the monetary authorities will explain how this process will go when they come out officially on the matter.
Otherwise, questions still arise even with regards to the payment of the US$$5 flat fee; for instance, what if my bank has gone bust or I have closed down my bank account?
Let me review some of the macro-economic anomalies that the two looming policy reviews should decisively deal with.
First is the widening trade deficit.
The country recorded a deficit of US$853 million in the first quarter of 2015, compared to US$839 million last year.
As long as exports are way below imports, we cannot expect to effectively deal with the liquidity crisis we face, especially in this dollarised environment.
You see, exports are our biggest source of revenue right now, while imports form part of our biggest liquidity leakages.
Had we used the US$853 million to buy local goods, all this money would be quenching our thirsty productive sectors and doing wonders right now.
It is for this reason that the voice crying “Buy Zimbabwe” from the wilderness should be accorded serious attention and action. Then we have unemployment.
Official statistics tell us that it was 4,8 percent in 2011, and has risen to 11,3 percent this year.
Many dispute these official statistics, arguing that, if I am to use Shannon Smith’s rate, “it ranges as high as 80 percent or even higher”.
Shannon Smith is America’s deputy assistant secretary of state for African affairs, who was in Zimbabwe not long back and reported that “current circumstances do not merit a change in our policy” (lifting of sanctions, I bet).
The Zimbabwe Statistical Agency is, of course, right that unemployment is 11,3 percent, at least according to their definition of who is employed, which also includes informal jobs — decent or not.
So, while I do not dispute official statistics on unemployment, I totally dispute their applicability.
The definition of an employed person used in Zimbabwe applies to developed nations such as Canada, Holland and Germany, where there are plenty of safety nets.
In countries like these, someone can be said to be unemployed, but they will be getting regular unemployment cash transfers, free health, free education and other goodies.
That is not the case in our situation, as even those who are said to be employed may sometimes struggle to meet basic necessities.
It is, therefore, important that policy should promote and protect formal jobs, which continue to be on the shrinking trajectory.
Many will also argue and say that the deflation spiral we are experiencing right now is a good thing because it’s a prices self-correction process.
It can’t be that simplistic.
We have to factor falling domestic demand into the matrix. When you look at the financial statements of virtually all manufacturing firms, you will realise that falling domestic demand is their mutual foe.
We have seen our inflation rate falling from minus 0,001 percent in October 2014 to minus 2,65 percent in April 2015.
This shows that we really have to stimulate domestic demand by strengthening consumers’ spending power.
Government, therefore, has to be careful not to do the opposite, as all it has been doing was adding more taxes on members of the public which kill spending power.
Talk of the proposed land tax, unit tax on land, fuel levy, you name it.
Tax increases also have a bearing on overall tax collections.
In economics, the Laffer Curve can clearly demonstrate that as tax rates increase, tax collections come to a point where they decline. I believe we have reached that point.
We, therefore, have to think along the lines of widening our tax net, especially by finding innovative ways of taxing the free riders in the informal sector in a cost effective way.
One other thing we seem to be also failing to tame in this economy is high interest rates, setting aside the liquidity crunch for a moment.
It seems banks will always seek to profiteer by charging usurious lending rates, even where they access the money at concessionary rates.
The case of the National Social Security Authority is quite evident. NSSA recently said local banks were contributing to de-industrialisation by getting money from the Authority at rates as low as five percent and lending it for as high as 15 percent.
Informal micro-lenders (loan sharks) charge up to 40 percent per month.
At such rates, we cannot expect any meaningful investment to take place in our economy.
Worse still, a significant number of individuals are getting these loans to appease their consumption demons.
It is my expectation that the Mid-Term Monetary Policy Review will deal with the high interest rates to foster a productive sector renaissance.
We also have a duty to explain our enhanced policies so that they don’t continue to be viewed as the old policies they once were.
Take Dr Shannon Smith for instance, who went back and reported to a Congressional sub-committee in the US that: “Other barriers to international investment (in Zimbabwe) include a lack of clarity about indigenisation policies.”
However, prior to Shannon’s visit, an IMF delegation reviewing the Staff Monitored Programme noted: “The recent amendments to the indigenisation law go toward creating an environment that can attract foreign investment.”
Even Phillip de Leon who led a delegation of investors that came from America, after Shannon had returned, told journalists: “My assessment . . . is that Zimbabwe is open to business.”
Why did Shannon miss all that?
Lastly, what we have to continuously find effective and timely solutions to is our unsustainable national debt.
The debt has continued to hinder us from accessing new lines of credit at concessionary rates.
We have recently heard France’s deputy secretary for foreign affairs, Mr Remy Rioux, saying his country will have the capacity to engage more actively and reopen various instruments to Zimbabwe “as soon as the debt issue is settled”.
As of December 2014, our external debt was US$7,1 billion, with the majority of it already in arrears.
What is, however, saddening is that about US$2 billion of that money are actually penalty interest fees. In other words, we didn’t borrow it — it accumulated.
So long as we remain in this kind of situation, our credit rating will remain depressed, resulting in us only accessing loans at higher interest rates, as there are a lot of risks that would have been factored in.
Investment will also be depressed as businesses feel that there could be tax increases in future to service the debt.
As we continue to deliberate on possible solutions to our country’s economic challenges ahead of the mid-term policy reviews, let us always put the above issues into perspective.
