Zimbabwe's economic crisis over the past two decades has been characterized by depleted liquidity, foreign exchange and cash shortages, soaring inflation that erodes incomes, and frequent power outages that disrupt business sector operations. Our Senior Business Correspondent Melody Chikono (MC) recently spoke with Professor of Economics and Executive Director of African Economic Development Research Gift Mugano (GM) on the sidelines of the Zimbabwe Insurance Association Annual Conference in Victoria Falls. We had a conversation and discussed the details. The government's economic blueprint amid headwinds. Below are excerpts from the interview.
MC: Could you please elaborate on National Development Strategy 1 (NDS1)? What are its advantages and disadvantages?
GM: NDS1 is a blueprint for achieving Vision 2030, which envisions the country becoming an upper-middle income economy, with per capita income ranging from USD 4,500 to USD 12,000. Currently, we are in the lower middle income of US$1,000. Therefore, we need to move to USD 3,000 per person. To achieve this, we need to change the structure of the economy. We need to transform the agricultural sector into a profitable one and move up the value chain.
If you look at NDS1, it's very clear in terms of the clarity of what we need to address, but in terms of execution, there are challenges there. It is said that it will be implemented using the national budget. We are talking about using budget resources like funds for NDS1. Doing that means being less prescriptive and direct about bringing more private players into the game. Fiscal policy and monetary policy are not structural policies, but rather complementary policies that support structural policies through incentive systems.
MC: Could you tell us more about structural policy?
GM: We need structural policy, or industrial policy. Therefore, when developing industrial policy to support NDS1, we simply come up with specific strategies for how each sector of the economy will function. Best practice would be to announce measures to boost economic activity and investment in these areas through the development of value chains.
Continue reading
Policy measures such as special economic zones can be an interesting means of promoting value addition, investment production and exports. Budgets are provided only as an additional charge and cannot be a separate policy. If SEZs are to be established through industrial policy, fiscal policy will be required. Therefore, although it provides support, it cannot be a stand-alone policy, and the same goes for agricultural policy.
They must champion and pioneer the advancement of agricultural transformation that moves the sector up the value chain. Instead of exporting raw materials, we ensure supporting industries are part of the ecosystem. We need to ensure that there is a public sector investment program that considers investment in roads.
This budget implements complementary policies that utilize funds to support agriculture. His current NDS1 emphasizes that the budget is the implementation of policy. It's like putting other instruments on hold. There is silence and no forum to really discuss industrial policy and what we have achieved.
MC: So what is the impact of all this?
GM: I think there is a disagreement on how policies should work together, and that gap is derailing our desire to achieve Vision 2030. Right now we have a command economy, command agriculture, but if we had agriculture, we would be much further along if we had a policy framework focused on economic transformation.
In short, there is a missing link in the articulation and coherence of structural policies, and some ministries are not seeing significant movement. When you think of policy forums, it's the Reserve Bank of Zimbabwe and the Ministry of Finance and Economic Development, and they can't do it. Run the economy alone.
MC: Are you talking about the current NDS1? Isn't the shape sustainable?
GM: As for execution, yes. But from a structural perspective, this blueprint is very clear because it describes the areas we need to focus on. But for example, how do we expect the Ministry of Industry and Trade to help us meet our fertilizer requirements? The answer is not there. How can we move up the value chain in the cotton sector? The answer is missing, as there are no sector-specific strategies developed to implement NDS1. There is no implementation system. Therefore, 760,000 jobs will not be achieved.
MC: You mentioned the budget expenditures of each ministry and agency, but could you tell us more about that?
GM: In terms of budget performance, the Ministry of Finance and Economic Development is required to distribute 50% of the budget votes to all ministries and agencies (MDAs) by mid-year. However, I pointed out that the utilization of resources in government departments and ministries is below 50% and resources are being depleted. A major concern is the Ministry of Health and Childcare and the Ministry of Foreign Affairs and International Trade, each of which is failing to provide basic health care and meet its external obligations, such as paying the salaries of staff at its diplomatic missions overseas.
Ironically, reinforcing my point about the drought of political will for government procurement systems, the following ministries and departments exceeded the 50% budget threshold: Office of the President and Cabinet (111%), Ministry of Finance and Economy and Development (75%), Ministry of Land, Agriculture, Water, Fisheries and Rural Development (80%), and Ministry of Defense and Veterans Affairs (75%).
Furthermore, the same ministries were given a huge supplementary budget. As this new budget, approximately ZW$1.22 trillion (auction rate of $1 USD: ZW$646,240 billion) will be distributed to government service providers, we expect the exchange rate to spiral out of control until the Zimbabwean dollar disappears. There is only one. .
If a ministry's resources are depleted, its activities will not proceed. Resources are misallocated and resources that are acquired are overused. There is overspending by those who earn more. The problem we have is that budgets are unstable, procurement systems are being abused, and budgets are being abused.
MC: So how does this destabilize the economy?
GM: We are still in a production drought situation. The second aspect is that funds are tied up in waste in the procurement system and flow into the black market, destabilizing the economy. The message to the government is very simple. Resources should be prioritized for production-oriented key ministries in NDS1. After you do that, you need to stick to your budget from a usage standpoint.
MC: Why do you think some other ministries are spending too much when they shouldn't?
GM: I think it's just a rent collection act. Checking with the Ministry of Finance and Economic Development, they have no legitimate reason to use the funds. When I talk to them, they tell me that this money is being used for emergencies, but right now they are using more than 75% and there are no emergencies.
Due to rent-seeking practices and corruption, they are refusing to release money to the Ministry of Industry, Commerce, Foreign Affairs and International Trade, which has been internationally shamed for not paying money on time. But they can afford to pay for a car. That's corruption.
MC: Are there any changes expected in the budget system in the future?
GM: No, unless they've been doing this for the past four years and it's well documented, but the Ministry of Finance and Economic Development has been a huge disappointment and things could get even worse come election campaign season. There is a gender. This will cause further distortion.
MC: What are your hopes for the next budget that can move the economy forward?
GM: The budget needs to understand what we are trying to address. Our challenge is production. There is also corruption.Corruption is when the Ministry of Finance and Economy does
Development has allocated significant funds and must play an oversight role, ensuring that these funds go to key ministries. Most importantly, we need to reduce our tax burden.
A 4 percent tax on transactions is just a threat. The purpose was to promote the use of the Zimbabwean dollar, but we lost that plan.
Therefore, the policy has become meaningless. Accumulated costs lead to inflation. If we want to fight inflation, we have to abolish the 4% tax, but we still need local currency.
The government still has an opportunity to bring the Zimbabwean dollar back from the dead. I know that the debate between the US dollar and the Zimbabwean dollar is a difficult one and can only be resolved if we choose the Zimbabwean dollar, but how can we get it back?
The government must decide in its budget that all taxes in the country will be denominated in Zimbabwean dollars and that the Finance Act, which requires citizens to pay taxes in the trade currency, will be repealed. All payments to the government must be made in Zimbabwean dollars.
What this does is create demand for the Zimbabwean dollar. This will force economic actors to maintain the Zimbabwean dollar as they realize it is an important currency in meeting government obligations.
If we don't, I'm sure we'll forget about the Zimbabwean dollar next year. This obviously means that if you want to get your hands on Zimbabwean dollars, you'll be exchanging them and throwing them away immediately, but you'll need it if you pay taxes or do government work, so it takes the pressure off. This is because it must be stored in order to on the black market.
Share this article on social
