5 September 2014

Zimbabwe: Fiscal Policy Review Tardy

editorial

AFTER central bank boss, John Mangudya, last week presented his maiden monetary policy statement, which dealt with current economic problems, while proposing some solutions as well as financial sector vulnerabilities and required interventions, many in the market now await Finance minister Patrick Chinamasa to give economic direction through his mid-term fiscal policy review statement.

policymakers mainly have two kinds of tools to influence the economy: fiscal and monetary policies. Fiscal policy relates to government spending and revenue collection -- the budget in other words.

For example, when aggregate demand is low in the economy, government can step in and increase its spending to stimulate demand. Or it can lower taxes to increase disposable income for people as well as businesses.

Manipulating the level of aggregate demand in the economy to achieve price stability, employment and economic growth are part and parcel of fiscal policy.

By contrast, monetary policy is the process by which the monetary authority, in this case the Reserve Bank of Zimbabwe (RBZ), controls the supply of money, often targeting interest rates to ensure growth and stability of the economy. Influencing money supply has a bearing on economic growth, inflation, exchange rate and unemployment.

Of course, given the multicurrency regime prevailing since 2009 in the aftermath of hyperinflation, economic meltdown and the demise of the local currency -- which means lack of monetary sovereignty for Zimbabwe -- the RBZ is unable to fulfil some of its core functions.

The RBZ's primary role is supposed to be to maintain the internal and external value of the Zimbabwean currency, which is now defunct.

In this regard, the bank is thus responsible for the formulation and implementation of monetary policy, directed at ensuring low and stable inflation levels.

A further core function of the bank is to maintain a stable banking system through its supervisory and lender-of-last-resort role, which has also been disabled due to lacks of funds.

Against such a background where the central bank is somewhat incapacitated, the role of fiscal policy becomes even more important.

So it is disturbing Chinamasa is not moving with urgency to play his part. While he may not realise he needs to present the mid-term fiscal policy review as a matter of urgency, business is looking to him for economic direction.

People and companies need to know, through facts and figures, how the economy is doing.

In terms of Section 7 of the Public Finance Management Act (Chapter 22:19), it is the duty of the minister to develop and implement a macro-economic and fiscal policy for the economy.

For the purposes of discharging duties set out by the law, the minister has to ensure a full and transparent set of accounts are, from time to time, and not less than annually, made available to parliament, indicating the current and projected state of the economy through fiscal policy.

It is now more than a year since the mid-term fiscal policy review was presented by the previous minister. That's why we are asking when will Chinamasa, who was late with his first national budget last year, deliver his own? The sooner, the better.

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