17 April 2009

Zimbabwe: A Critical Review of Sterp

opinion

The Short Term Emergency Recovery Programme (STERP) was launched on March 19, 2009 as part of the implementation of the Global Political Agreement. It is an emergency short-term stabilisation programme which will run from February to December 2009.

It comes on the back of a string of economic policy blueprints crafted since independence such as ESAP (1991-1995), ZIMPREST (1998-2000), Millennium Economic Recovery Programme unveiled in August 2001, National Economic Development Priority Programme (NEDPP) crafted in 2006 and the still-born Zimbabwe Economic Development Strategy (ZEDS) which was supposed to run from 2008-2013.

The key goals of STERP are to stabilise the economy (macro and micro), recover the levels of savings, investment and growth, and lay the basis of a more transformative mid-term to long-term economic programme that will turn Zimbabwe into a progressive developmental State.

STERP comes at a time when the world economy is still reeling from the effects of the financial crisis which began in the US in August 2007. The financial tsunami has seen the global economy slide into its worst recession since the Great Depression.

The January 2009 update of the World Economic Outlook of the IMF projects global economic growth to slow from just 3.5 percent in 2008 to about 0.5 percent in 2009. The IMF also projects growth in world trade volumes to decline from 9.3 percent in 2006 to only 4.1 percent in 2009.

Economic growth in sub-Saharan Africa is expected to slow from just over five percent in 2008 to about 3.25 percent in 2009, representing over three percentage points less than forecast a year ago owing to commodity prices and pressure in capital flows.

With regards to short term macroeconomic stabilisation the dilemma facing the inclusive government is that it has a very few viable and credible options available on the table to deal with the economic paralysis.

The two commonly prescribed economic stabilisation strategies of full dollarisation and a currency board are not tenable and sustainable for Zimbabwe.

Full/de jure dollarisation entails a country officially abandoning its own currency as a legal tender in preference for a more stable currency such as the US dollar or the euro. Dollarisation is normally introduced when a currency has been decimated by hyperinflation that it cannot perform the basic functions of money (medium of exchange, store of value, unit of account and standard for deferred payment).

A currency board on the other hand is effectively a fixed exchange rate regime. It issues notes and coins against 100 percent backing by a specific reserve asset usually the US dollar or the euro. There is therefore an obligation to exchange local currency against the anchor currency on demand at the fixed exchange rate.

A currency board requires sound administrative arrangements and credibility. A country also needs sufficient foreign currency reserves to initiate a currency board.

An important difference between a currency board and dollarisation is that the former enables a country to collect seigniorage (profit which accrues to the Central Bank from printing money). This profit normally amounts to about one to 1.5 percent of GDP. The adoption of full dollarisation on the other hand also requires sufficient foreign currency reserves.

Therefore both full dollarisation and a currency board are not policy options for Zimbabwe as we do not have the sufficient foreign currency reserves to back either of them, hence the adoption of partial/de facto dollarisation.

The problem with partial dollarisation is that it only benefits the few people that have access to foreign currency while the majority that have no access to it are left to the mercy of the economy.

Currently, the government cannot even pay its civil servants US dollar denominated salaries except for the US$100 monthly allowance (a far cry from the CSO PDL currently pegged at about US$500).

Effectively civil servants are still getting paid in the worthless and moribund Zimbabwe dollar.

Unless there is a review in the civil servants and employees remuneration to reflect the cost of living there is going to be a sharp increase in the levels of poverty and deprivation.

It is clear that the main priority of the inclusive government is on political accommodation and power sharing and not on people's basic needs such as education and health. It is not based on human-centered principles or on service delivery but rather on the need to share power.

The cabinet size of 71 is way too big and unsustainable for an economy of the size and population of Zimbabwe. It is quite apparent that Zimbabwe cannot afford such a bloated government structure especially at a time when the treasury is bankrupt. The little revenues that are going to trickle into the state coffers will largely go towards paying the day to day recurrent expenditures of the inclusive government with very little left for social protection and the rehabilitation of the infrastructure.

The successful implementation of STERP will depend on the mobilisation of more than US$5 billion. The bulk of the financial package will have to come from regional and international partners. It however, remains to be seen whether the regional and international community will be willing and able assist Zimbabwe and to what extent especially in the midst of the global financial crisis which has thrown the world economy into a recession.

The success or lack thereof of the STERP will also hinge on whether the inclusive government is willing and committed to deal with the outstanding governance issues and adopt deeper political reforms (media reforms, adoption of a people-driven constitution etc).

Stories of continued disturbances on commercial farms do not augur well for the economic prospects of the nascent inclusive government.

The absence of an overarching developmental vision that will underpin and anchor STERP is major limiting factor. The development strategy should also provide a guiding and overarching framework of where the country is going remains a limiting factor.

STERP is only just a short-term economic revival document and it does not address the structural development challenges inherent in the economy.

STERP contains no specific measures to deal with the structural distortions and rigidities arising out of the dual and enclave economic structure. The demise of the formal sector coupled with the likely adverse impacts of the global financial crisis and anti-inflation measures, implies the decent work deficits that characterize the economy and entrenches poverty and its feminisation will abound.

More importantly, STERP fails to provide stimuli for a new paradigm that is pro-poor and inclusive, fails to promote the integrability of marginalised groups (women, youths, people with disabilities and people living with HIV/AIDS) and sectors, especially the informal and rural economy, and unleash a more employment-intensive pathway out of poverty. The dilapidated state of infrastructure provides an opportunity to leverage pro-poor, employment intensive infrastructure programmes.

- Zimbabwe Economics Society (ZES) articles are coordinated by Lovemore Kadenge (The President)

Disclaimer: The views expressed in this article are those of the author and not necessarily of the Zimbabwe Economics Society.

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