Financial Gazette (Harare)
Munyaradzi Mugowo
10 July 2009
(Page 2 of 2)
Well-placed government officials say, the government decided to phase in the multi-currency system gradually simply because its coffers were too thin to finance the civil service wage bill in foreign currency and still maintain national and foreign payments.
The plan according to the sources had been mooted in July 2008 soon after Giesecke and Dev-rient, a Germany supplier of bank note paper, security inks and machinery spare parts, unilaterally cut supplies to Zimbabwe in compliance with European Union sanctions-motivated decree by the German government.
But when the dilemma reached a breaking point, the government had no choice but to deploy vouchers in lieu of cash, redeemable at deliberately lagged intervals to allow inflows of revenue from the Zimbabwe Revenue Authority to build enough balances at banks.
This happened way before Finance Minister Tendai Biti officially assumed duty on Feb-ruary 13.
In fact, Minister Biti, is actually on record saying before he could get keys to his office, he was greeted by a civil service wage bill of US$40 million and a mount of vouchers that Chinamasa and his team had printed to facilitate payment.
The challenge however, was that the payment had to be made against incoming revenue as the government only had about US$4 million in its account!
The currency reforms took away the foreign exchange risk, which had driven speculative investments and dealing in the first three quarters of the year, and systematically stabilised prices.
The moment the stabilisation measure was imp-lemented, it did not take long for the economy to adjust back to micro and macro-economic fundamentals, which conventionally dictate economic activities at both micro and macro-economic levels.
But prosecuted from a monetary front, economist Simon Munongo argues, the reforms did not fundamentally alter the situation in key productive sectors of the economy as these would require broader fiscal interventions.
"The stability we are currently experiencing is superficial," Munongo says.
"Real stability will only be achieved when we have addressed challenges on the supply-side of the economy. We need to address issues such as capacity utilisation in the agricultural, manufacturing, mining, tourism and other pillar sectors of the economy.
"This is where we are encountering problems because our private sector is under-capitalised and our banks do not have the funds to lend to the companies that are struggling to recover. The longer we take to address these challenges, the more we are vulnerable to external macroeconomic fluctuations."
Already, exogenous factors such as an oil price and frequent exchange rate swings between the South Africa rand and the United States dollar, two of Zimbabwe's most important multiple currencies, threaten to break the overly fragile stability the country has enjoyed since the year began.
Firstly, the stability is not based on a firm productive or macroeconomic foundation to have an enduring life. This is why it has only supported the recovery of non-productive sectors of the economy such as tourism, telecommunications and retail, the latter of which have turned themselves into unofficial distribution agents of regional producers, particularly those from South Africa.
Secondly, the import dependence itself poses an ominous threat to the recovery of local producers as the landed costs of some finished goods from South African firms, a majority of which are low-cost producers, are many times below the cost of raw materials for some local industries.
If the multiple currencies the country has adopted were to be withdrawn today, unequivocally, the hell, madness and maelstrom of last year would hit the economy again in a day or two and take the country to a new bottom that it has never tasted before in the entire economic history of the country.
This is the problem that the monetary reforms have tried to half-solve by creating a stable and predictable operating environment necessary for long-term economic rec-overy through stabilisation programmes such as STERP.
STERP
Outlining the vision, reforms, programmes and projects of the inclusive government over the 11 months from February to December this year, STERP is the only framework macroeconomic blueprint that the new government has so far proffered. The original plan was to have a successor medium to long term plan as from January 2010.
The sad story about this short-term economic plan is that the government, as the International Monetary Fund has noted in its Article 4 Consultat-ions report, does not have the "capacity to implement its own programme."
According to Finance Minister Biti, the government needs approximately US$8-10 million to implement STERP thro-ugh two or more 100-day action plans, and grow by more than four percent, thus reverse a downtrend of seven years.
But, if the truth be told, it is not clear whether the inclusive government is coming or going because, as expected, STERP has already fallen into the trappings of a business as usual mode, a pitfall that hamstrung earlier economic plans such as ZIMPREST and the National Economic Development Priority Programme.
Launched in mid-May amid pomp and fanfare and covering the period April 29 to August 6, the first 100-day action plan, which lays out the vision and time-bound targets and commitments of the inclusive government in implementing STERP, has already fallen behind schedule.
Yet, it now has less than two months to run before it expires. Logically, the nation can forget about the much-touted medium-term successor economic plan initially expected in December for now.
It may seem a harsh criticism to say, STERP and its first 100-day plan were bound to fail from the very day they were conceived in thought, but the reason is plain. The document set its targets based on expectations or unbound promises of balance of payments support (BOP) from unknown altruists or benefactors who now appear to have vanished mysteriously.
In pronouncing the preamble for the initial action plan during its official launch on May 13, Deputy PM Mutambara, admitted that without the necessary financial backing, the package of implementation tools was just like a beautiful dream about home by a soldier at the war front.
"Resources equal results," Mutambara said. "This action plan represents the thinking, the planning and the strategising. But all this represents only two percent of the work to be done. It is implementation that cou-nts and it's what constitutes 98 percent of the assignment. So, today, we are here to celebrate two percent victory."
The most absurd thing about the 100-day action plan is that it sets as an action plan the process of mobilising funds for the implementation of the action plan itself.
The plan organised 31 line ministries into five clusters, namely Economic; Rights and Interests, Infrastructure, Social and Security.
Constituted of 11 ministries including, economic planning, finance, agriculture, mines, touri-sm and six others, the economic cluster has been tasked to develop turnaround strategies for key utilities, mobilise lines of credit for the private sector, attract foreign direct investment, secure BOP support and mobilise finance to meet the budgetary requirements of the other four clusters.
Specific targets for the cluster include raising money to finance STERP, mobilising resources and lines of credit for winter wheat production by April 30, mobilising fertilizers for winter wheat by May; facilitating the provision of other inputs for the 2009/10 agricultural season by June 1.
Others include carrying out a land audit by August 6, completing a reline of ZISCO's blast furnace number 4 in 90 days and reviewing the framework for mining rights and finalizing the Mines and Minerals Amendment Act to facilitate the collection of rentals and royalties by the end of the 100 days.
The largest financing requirements have been made by the infrastructure cluster, which comprises ministries of public works, transport and infrastructure development, energy and power development, water resources, development and manpower development and four others, which are critical for economic recovery.
Public works minister and chair of the infrastructure cluster, Theresa Makone, said the Ministry of Energy and Power Development alone ne-eds about US$32,2 million to rehabilitate ZESA's three generators at the Hwange Power Station; upgrade the power transmission and distribution network; increase power importation; increase par-affin supplies to service stations and boost fuel deliveries by rail and pipeline to 90 percent.
It would also cost the cluster about US$32,5 million to repair the country's major trunk roads, including potholing-filling, she added, and more than US$234 million to bring major water projects on stream, including the Bubi-Lupane Dam, the Gwai-Shangani project and the Matabeleland Zambezi water project.
But without the necessary funding, it may take more than 100 days to implement the first 100-day action plan.
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