Harare - On the 5th of October 2018, the Zimbabwe government launched an ambitious economic blueprint dubbed Transitional Stabilization Programme (TSP) (2018-2020) aiming to stimulate growth and stabilize the macroeconomic environment for a perfect take-off towards the attainment of Vision 2030. The TSP was to be succeeded by two 5-year Medium Term Plans, National Development Strategy 1 (2021-2025) and National Development Strategy 2 (2026-2030) with the former launched in November 2020.

Vision 2030 is a national ambition to be categorized as an upper Middle-Income Country (MIC) by the year 2030. According to a recent World Bank 2021 update, MICs are defined as economies with a gross national income (GNI) per capita between US$1,036 and US$12,535 with lower MICs having per capita GNI (US$1,036-US$4,045) and upper MICs per capita GNI (US$4,046-US$12,535).

For starters, GNI measures the final value of incomes flowing to Zimbabwe-owned factors of production whether they are located in Zimbabwe or abroad. In simple terms, it is a sum of GDP and net property income from abroad. GNI is arguably the best indicator of a country’s living standards though it does not record unilateral transfers like remittances which are amongst the largest types of income inflows to developing nations.

Is the country on course to the attainment of this Vision 2030? Many economic analysts are skeptical of these blueprints since they have witnessed various forms since 1980 from ESAP to ZIMPREST to STERP to ZIMASSET but the economy remains marred in frequent recessions.

Before I address that question, let me start with a brief review of the key tenets of TSP since it was an initial part of the Vision 2030.

The TSP envisaged an average GDP growth rate of 9% and annual average inflation of 5% over its life span. The quest to reduce the ballooning twin deficit (trade and fiscal) saw the implementation of austerity such as revenue enhancement (a 2% electronic tax). Also, the government wanted to clear about US$5.6 billion in arrears owed to international financial institutions (IFIs) as well as eliminating structural rigidities among other reforms.

In 2019, the country experienced the first recession since the 2008 hyperinflation period shrinking by 10%. It is estimated to have fallen again by 8.1% in 2020 though a rebound of 2.9% is projected for 2021.

The main drivers of economic meltdown during the TSP period were a shortage of forex, acute energy deficit, drought, cyclone, covid-19 pandemic, volatile exchange rate, and rampant inflation. The positive 9% average growth rate in TSP ended up being an average -9% decline.

Annual inflation rose from 42% in December 2018 to close 2019 at 521%. This emanated from excessive money supply particularly base money which instigated an exchange rate overrun and via pass-through effects led to higher prices. In 2HY2020, annual inflation started moderating thanks to sustainable base money growth and stabilizing the exchange rate. The outturn went down from 838% in July to close the year at 349% but this is nowhere near TSP envisaged average rate of 5%.

Also, key reforms such as State-Owned Enterprises (SOEs) reforms to address some structural rigidities were partially implemented. Almost all parastatals are depending on the fiscus for their day-to-day operations. Also, the national debt issue remains unsolved to date for a country that is facing a high debt overhang. Debt overhang refers to a debt burden so large that a country cannot take on additional debt to finance future projects. Zimbabwe's external public and publicly guaranteed debt are estimated at about US$10 billion.

The irony in defending the TSP is that it is a period characterized by the massive economic meltdown, rising inflation, and poverty levels. Nevertheless, there are some positives one can attribute to this policy guide such as the reduction of the twin deficit.

Thanks to austerity measures, the fiscal deficit fell drastically as revenue collections surged and the country recorded a favourable external trade balance in 2019 and 2020 relative to the dollarization period. During dollarization, the country witnessed an average trade deficit of US$2.5 billion per year which was not sustainable. More so, currency reforms instituted during TSP helped to re-introduce a local currency thereby restore monetary policy and make local firms competitive thanks to a low-value ZW$.

In my view, the government has managed to initiate a route towards a long-term stable macro environment. Though downside risks to inflation outlook remain elevated, annual inflation is currently on a downtrend since August 2020 and monthly outturn hoovering in the single-digit territory. Also, the exchange rate on the interbank market has been relatively stable since September 2020. This ZW$ and price stability in 2HY2020 fueled economic activity helping to avert a worst-case GDP scenario many economists initially predicted.

According to CZI, thanks to this stability, industry capacity utilization improved by 11 percentage points from the 2019 level to settle at 47% in 2020 and is projected at 61% in 2021.

This year, the country is set to recover from covid-19 induced recession as vaccines have been fully developed and are currently being administered worldwide. This rebound is expected to instigate a sharp commodity price recovery which is a plus for commodity-dependent Zimbabwe. Also, the agriculture sector is set for the largest bumper harvest since 1984.

However, as what current statistics are showing, the upper-middle-income status by 2030 for Zimbabwe is becoming a tall order. Nominal GDP in 2019 was recorded at US$21.44 billion and is estimated to have declined by 8.1% in 2020 giving an estimated GDP of about US$19.7 billion.

In 2009, per capita GNI stood at US$670.6 which grew by 102% to reach US$1354.4 by 2019. An upper MIC status for Zimbabwe by 2030 requires a GDP of about US$65 billion and a GNI of about US$4,046. Achieving this requires a sustained GDP growth rate of at least 9% per year for the next decade (2021-2030). GNI will have to more than triple its 2019 level. This is nearly impossible as there are no miracles in economics. There are many structural adjustments needed until such growth rates are to be realized.

In my view, authorities should not be worried about Vision 2030 but work around the clock to improve citizens’ welfare which is currently a mess. After all, GNI fails to account for costs of living or subsistence levels -which means that while providing good information about the income levels of the people in a country, it should be used in context with other measurements to grasp a full picture of the income and purchasing power a country's citizens have. So, it is key for a country to have food security and reduced poverty prevalence.

Currently, most basic goods are out of touch for the poor because of high price levels. The average salary for the majority of the population lags the poverty datum line, throwing millions into poverty. Also, the agriculture sector which is the mainstay of the economy is largely dependent on climatic conditions. Statistics show that only about 100,000 hectares are under functioning irrigation schemes while millions of hectares of arable land depend on rains. This makes the performance of the Agric sector oscillatory in nature.

The manufacturing sector activity is still way below the regional average while public corruption remains high. According to Transparency International’s 2020 Corruption Perception Index, Zimbabwe is one of the world’s most corrupt countries, ranked at number 157 out of 180 countries. Corruption is not only bad for economic growth but also hurts people, especially the poor as it reduces the resources available for the financing of social spending. The political environment remains fragile and the West continues to maintain economic sanctions against Harare. A good political climate is key for development since it encourages both domestic and foreign investment.

For a country that went through 2 decades of economic mismanagement and policy inconsistencies, it will take time to fix until the full potential is attained. Slowing the pace is also the fact that the vast majority of government programs are being financed using domestic resources as credit lines from key IFIs are suspended following non-payment of arrears. This is forcing the Treasury to adopt a gradualist approach when shock therapy was the right dose for a quick recovery. I am also mindful that overreliance on domestic borrowing may stifle growth as it crowd-out the critical private sector.

There is still a lot to do for the government before it can start to focus on ambitious income statuses. In other words, it is vital to check the airplane and its runway before allowing it to take-off into the skies! This coming decade gives authorities time to correct the wrong past.

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