Financial Gazette (Harare)
Munyaradzi Mugowo
10 July 2009
Harare — THE unaudited financial report of the inclusive government to the citizens of Zimbabwe for the half year ended June 30, 2009 is as follows:
Operating environment
The adoption of multi-currencies in January brought about stability and predictability in the local economy. Business confidence as expressed by the expectations of consumers and business executives also recouped remarkably during the review period.
However, a strong rand and an upsurge in crude oil prices to levels above US$60 a barrel in May abruptly put an end to the deflationary trend the country had enjoyed since December last year as the country is still dependent heavily on imports of manufactured food products from South Africa.
During the period, Prime Minister Morgan Tsvangirai embarked on a diplomatic tour of the United States and Europe to mend ties, severed nearly a decade ago. The mission, however, produced mixed results as some countries maintained a hostile foreign policy towards Zimbabwe while only a few extended an olive leaf.
Revenue performance
Revenue increased from US$4 million in February to nearly US$100 million by June 30 due to a modest supply response to the multi-currency system. Despite the persistence of low disposable incomes, Value Added Tax performed above expectations and surpassed corporate tax and Pay as You Earn as the leading tax head.
This was largely a result of the accelerated remittance periods introduced in January.
Corporate tax was subdued by the poor performance of key industries, namely agriculture, manufacturing and mining industries. Low plant capacity utilisation and depressed productivity as a result of power-related reductions in machine hours stoked up costs and affected profitability.
Several companies could not access lines of credit and other credit arrangements as targeted sanctions and concerns over property rights kept the country risk high.
Enduring negative perceptions about Zimbabwe, most of which are closely related to the persistence of economic sanctions and international mistrust of the inclusive government, also continued to hamper prospects of securing balance of payments support from multilateral institutions during the period under review.
Needing around US$8-10 billion to implement the Short Term Emergency Recovery Programme (STERP), and unable to secure any budgetary support, the government has had to shelve most of the programmes it had committed itself to, but still could not avoid a budget deficit of over US$2 billion, which constitutes over 50 percent of the country's gross domestic product.
As a result, the government had no choice but to defer civil servants salaries and maintain the US$100 allowances for another quarter.
Public institutions
State-owned water, transport and power utilities and other public quasi-government institutions continued to face challenges during the period.
The University of Zimbabwe has not been able to open this year due to water, sanitation and high staff turnover problems.
Air Zimbabwe has had to pull out of traditional routes such as Kenya, Tanzania and the United Arab Emirates; the National Railways of Zimbabwe, too, has failed to get onto the rail again, while ZESA has failed to keep power supply flowing to due falling generation capacity and staggering debts.
The country's inter-city highways and approach roads are in a state of disrepair, water supply has dissipated to a trickle and a host of other challenges still stand in the way of a successful economic turnaround programme.
Outlook
Inflation conditions in the country are expected to continue to deteriorate as result of an appreciating rand and rising oil prices. This may trigger severe cost overruns, which may result in a supplementary budget.
Persistent challenges in terms of securing lines of credit will continue to affect the ability of local companies to recapitalise and increase capacity utilisation to the targets the inclusive government set out in STERP. This has adverse implications for the ambitious growth target of four percent the fiscal authorities have set for the year.
The unrelenting global financial crisis is also expected to continue to have a long depressing effect on Zimbabwe's major traditional markets and affect Zimbabwe's export performance.
Presented by order of the inclusive government:
Performance criteria
Article 3 (a) of the Global Political Agreement (GPA) clearly sets the criteria for judging the performance of the inclusive government.
It states: "The parties agree to give authority to the restoration of economic stability and growth in Zimbabwe. The government will lead the process of developing and implementing an economic recovery strategy and plan. To that end, the parties are committed to working together on a full and comprehensive economic programme to resuscitate Zimbabwe's economy, which will urgently address the issue of production, food security, poverty and unemployment and the challenges of high inflation, interest rates and the exchange rate."
Essentially, the success or failure of the inclusive government will be reflected in its ability to stimulate economic and industrial growth, restore monetary stability, including bringing the Zimbabwe dollar back into circulation.
This will be marked as well by the institutional and democratic reforms and constitutional chan-ges required to make Zimbabwe a progressive democratic state.
According to President Robert Mugabe, the head of state and government, the inclusive government faces serious technical capacity limitations as it has brought in some "extraneous elements," which he thinks cannot rise up to the assignment as stated in Article 3 (a) of the GPA.
But Prime Minister Tsvangirai, who chairs a council of ministers, says he, together with officials from his party, are still "on a learning curve" and should be given more time to settle.
"The process is irreversible", "me and (Pres-ident) Mugabe will succeed or fail together," the premier remarked recently.
Deputy PM, Arthur Mutambara, on the other hand, has a vision to "run the country like a business," which suggests a shift to scientific planning, accounting and progress review.
Whichever way they may choose to look at things, the great news for the parties to the GPA and the inclusive government at large is that the nation is fully behind them and expects them to deliver on Article 3 (a) of the agreement to which, they appended their signatures and swore allegiance.
A survey conducted by the independent Mass Public Opinion Institute in Zimbabwe's 10 political and administrative pro-vinces in March shows that about 80 percent of the people polled want the inclusive government to run for five years on optimism that the government will fulfill their hopes and aspirations as a nation.
Inherited reforms
Contrary to belief, the fragile stability that the country currently enjoys has little to do with the reforms that the inclusive government has initiated.
It must be remembered that the inclusive government assumed office riding on the crest of the monetary stabilisation reforms that the central bank had initiated at the beginning of the third quarter of last year.
The multi-currency reforms, which started off sectoral with the introduction of a few Foreign Currency Licensed Shops and Warehouses partly to incentivise imports of fast moving consumer goods which had disappeared from shelves and partly to stabilise prices, were widened in scope in January when the use of foreign currency was approved for every other sector of the economy.
The reforms, which were laid out in the national budget presented by the then acting minister of Finance Patrick Chinamasa on January 30 2009, were further consolidated by the monetary policy that ensued.
Although the general citizenry criticised and resisted the multi-currency system when it was first introduced arguing that, except for street money vendors, only a few of them earned foreign currency at the time, typically, they are more likely than not to react with greater ire if foreign currency was to be withdrawn today.
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