Gains need reinforcement

20 Oct, 2017 - 00:10 0 Views
Gains need reinforcement

eBusiness Weekly

Climbing out of the economic and financial hole Zimbabwe was buried in at the end of the hyperinflation era allowed a lot a good things to happen, and regrettably a lot of bad things.
As we push forward into the 10th year of recovery next year, we have to keep the benefits but take a long hard look at the negative side. That will require discipline at the top plus enforcement of a series of laws, rules and regulations that can only be effective when enforced firmly and fairly, with no special favours, corrupt practices or abuse of office.
The 2018 Budget Strategy Paper, which outlines requirements rather than the methods used to meet these requirements, cannot be contentious. It calls for just about every economist would generally agree is needed.
For a start the Government needs to bring its budget deficit under control and the paper suggests halving this to 4 percent of GDP. We need to remember that at the beginning of the recovery the Government had to balance its budget; no one in or out of Zimbabwe was going to lend us anything, so bad was the Zimbabwean credit rating. But this has improved quite dramatically and the Government has been able to borrow, largely through Treasury Bills, which are regarded as sound because the Reserve Bank of Zimbabwe meets all payment conditions.
And there were many good reasons why the Government had to borrow. For a start it had to cope with the horrific social costs of severe drought and then it had to show the way to an agricultural recovery through Command Agriculture. It managed both. But there was also a degree of slackness when money was borrowed for non-emergency recurrent expenditure, hence the need for tougher discipline at the top. Holding the post of Finance and Economic Development Minister will rarely win anyone a popularity contest, but doing the job well will win respect, although not affection.
The second set of problems occur outside Government. The private sectors have had a lot less regulation in recent years, being able to import just about anything they want without a special licence and being able to pay for it with “local” currency. This has ended. The gap between imports and exports grew too large in a growing economy to be sustainable. If Zimbabwe had had its own currency, there would have been quite serious devaluation as pure market forces trashed the local currency. But for all sorts of reasons retaining the stability of the US dollar has exceptionally wide acceptance across Zimbabwe; the only argument that arises is whether the foreign currency we use for local bookkeeping should be the US dollar or the SA Rand.
So, to cope, the currenct account needs to balance and to avoid a weird inflation spiral in a US denominated economy the balance needs regulatory intervention rather than pure market forces allowing the rich to import expensive luxuries while the poor struggle with shortages and expensive food. And again a number of Government policies have been successfully implemented that go to the basics: resuscitate manufacturing but with safeguards to avoid monopolists pumping expensive sub-standard garbage into the market, and fix up agriculture, where there is a serious four-fold benefit of more exports, fewer imports, economic growth and this growth spread among a few hundred thousand households.
But with regulation there are those who would rather cheat themselves to wealth than work for it. So we have some, ranging from small traders to quite large businesses trying to make money from trading between US banknotes, bond notes and bank deposits. They add zero value doing this and distort markets, so clamping down harder, as the budget paper suggests, makes sense.
Others try and manipulate markets through smuggling, accepting and paying bribes, influence pedalling, queue jumping and other undesired and underhand practices. Again a regulatory environment needs to create and retain a level playing field and he budget paper gives a very high priority to stamping out distortions, which after all are mostly caused by people breaking unenforced rules.
Once these are enforced, and enforced for all regardless of status, things should improve quite quickly. And then, with universal enforcement, problems and required changes are far easier to see and get general agreement over.
Zimbabwe has a relatively strong economy by its own historical standards. To maintain growth in the right directions we simply need to keep create an environment that benefits those who create real value and wealth by their work and hammer those who want an easy journey preying on the fears and needs of their neighbours.

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