Mthuli Ncube signals policy shift

HARARE-Zimbabwe’s finance minister Professor Mthuli Ncube has said Zimbabwe has now achieved its austerity set targets as evidenced by a surplus position in the first 4 months of the year and that in a few weeks he will announce a termination of the policy.

It would have been equally duplicitous if government would have insisted that they are pursuing austerity in instances when the budget is chasing runaway inflation and is set for a 50% upward adjustment in July even as the full year deficit is likely to top $3 billion.

In October 2018, the new administration began a journey of policy shift both on the monetary and fiscal policy through separation of FCA accounts between the RTGS and the Nostros on the monetary side and introduction of an intermediated 2% tax.

The 2% austere tax signaled a policy direction shift which government was to undertake in trying to deal with the macro imbalances particularly the fiscus deficit and the resultant monetary disintegration and liquidity scarcity.

A month later, in November 2018, the minister of finance presented the 2019 budget dubbed austerity for prosperity, which primarily focused on fiscal realignment on 2 fronts, the fiscal deficit and the current account.

The measures spelt out in the budget were largely designed to influence revenue growth and minimal policy measures were put in place to reign in expenditure.

Much of the expenditure constraining measures were focused on structural issues, which to date have yielded less given the sustained loss positions and low accountability in most parastatals. Some ground work has however been done to ensure restructuring of some of these entities.

In his address to media on Sunday, the minister said, austerity has been successful and that he will soon announce its end. He highlighted that the positive fiscal surplus achieved in the first 4 months of the year were an indication of policy success.

He said there is real dollars earned over the period and that fiscal consolidation is now in place. He spoke of having his ratios in place such that a full year deficit of $2 billion will be accommodated easily since there has been an adjustment in GDP valuation.

The fiscal surplus achieved in the first 5 months of the year was on the back of inflation induced earnings growth and the intermediated tax.

There are evident downside risks to the austerity policy measures which by any means are not sustainable. Analysts at Equity Axis believes the about turn in policy direction is a disguised admission of policy failure which government now wants to correct through stimulus via the monetary leg.

Over the last 6 months industry capacity has dwindled and there is great fear of a huge GDP loss. Equity Axis estimates a GDP growth of -3.8% by year end while the IMF forecasts a -5.2% GDP growth. The world bank also revised its 2019 GDP for Zimbabwe to negative.

The recession is however viciously turning into a stagflation, which is a double conundrum of inflation and recession. Government would therefore need a policy measures which address the recession to avoid a depression as well as manage inflation in order to achieve a healthy economic growth.

The plan is probably what is driving a rushed reinstitution of the local currency as the only functional currency in the economy.

Controlling the levers of money supply will likely give government latitude to influence the behavior of macro variables more effective, but the history of state power abuse and a defective telescopic view informing the bird in hand approach, has seen government always failing on this desired route.

EQUITY AXIS NEWS

Respect Gwenzi

Respect is the Lead Analyst and Managing Director at Equity Axis. He has 8 years experience in respective fields of finance and media. Particular areas of expertise include Asset Management, Stockbroking and Financial Media. Respect is on a mission to change the course of Financial Media in Africa through digitalization

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