The country now needs “radical economic reforms to attract investment” and to settle its debts, said President Mnangagwa during his inauguration speech..
Policy Talk with Tinashe Kaduwo
When the current government took office around a year ago, it initiated reforms in important areas of the economy, and overall polity. Some of the reforms included institutional reforms and civil service reform, with more focus on fiscal consolidation. Moreover, to reform the state-owned enterprises (SOEs), some entities were approved for privatization whilst other were set to merge, among other governance-related reforms to improve the efficiency of these enterprises. Yet not much progress can be seen on any of these initiatives. There is a deep silence on these fronts. Resultantly, the SOEs are still in need of huge bailouts from the central government, remaining one of the bigger sources that feed into keeping the fiscal deficit high.
Taking stock on reforms progress, there is very little to show especially on institutional reforms. As the first year comes to a close, it is high time that significant progress is made on most of these and other areas where reform is needed. Notwithstanding that, privatisation of important SOEs, may not in fact be desirable, firstly because, these are strategic assets and such should be under government control. Secondly, private sector may totally take them on the road to earn profits, and not care about welfare aspects that could be instilled by accepting lesser profits through these SOEs. Thirdly, countries following the social democratic model such as the Scandinavian countries, have mainly run SOEs successfully in the public sector, and have used their returns to dent poverty and meet equity concerns, along with keeping these strategic assets within the public domain.
Progress has been noted in the monetary sector but it is sad, to note that authorities are yet to accept that the major crisis of the economy is the virtual collapse of state institutions. Focus should be put on researching how to make the institutions more efficient rather than focusing on currency issues which are secondary. For this reason, the government should have at least formulated a committee on institutional reform. Its purpose would be investigating political and economic institutional quality determinants and provide working solutions to the government. The committee would be interacting with media, so as to brief on its findings, the ideological and methodological underpinnings of the way they view the very concept of institutions, and the underlying organisations and markets, along with their inter-relationships. The committee should have a clear methodology and philosophical lens to view economic institutions grounded in orthodox or heterodox economics, or more specifically based on neoliberal or social democratic philosophies.
Such a reform package is more important for providing reforms on the supply-side of the economy, both in terms of the real and financial sector institutions. This is much needed in balancing the current austerity policies which are highly tilted in favour of aggregate demand curtailment. If some significant progress could be made on such institutional reforms, this would improve the effectiveness of most policy instruments in lowering macroeconomic instability and in enhancing growth.
Furthermore, not many reforms have surfaced to improve the state of natural disaster management. Add to it the lack of reform strategy to deal with the all-important issue of climate change, not much headway seems to be there. Reforms of any substance are generally missing to improve institutions involved in the real sector. Overall, reforms have not been introduced to improve the institutional and governance structures of real and financial sector markets. This is important so as to lower market failures and to reach in turn greater efficiency and equity gains.
So far, government’s major emphasis has been all about dealing with the twin deficits, which of course is important. But more is needed in making, for instance, the agriculture sector more productive and Command Programs more efficient. The government indeed has very little to show in terms of progress on reforms. As the first year comes to a close, it is high time that significant progress is made on most of these and other areas where reform is needed.