Eschew election splurge, Government told

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EXPERTS have urged authorities to resist the urge to engage in populist fiscal spending, and instead concentrate on further stabilising the economy ahead of the crunch 2023 national elections.

Speaking to The Financial Gazette this week, business leaders and economic analysts said keeping the focus on reviving and growing the economy would reap rich dividends for Zimbabwe in the medium to long-term.

The chief executive of the Zimbabwe National Chamber of Commerce (ZNCC), Chris Mugaga, said there was no doubt that the government needed to do more to maintain the current economic stability, as some of the measures which authorities had implemented in this regard — including the introduction of gold coins — were short-term in nature.

“Fiscal prudence has to be a top priority going forward because most of the monetary interventions we have had were a response to fiscal mismanagement.
“Going forward, we also need an empirically guided interest rate policy because interest rates can be reactionary in Zimbabwe … as evidenced by the current interest rates of 200 percent,” he said.

In Mugaga’s view, there was need for a market-determined rate, which had “a comprehensive appeal beyond just the inflation target”.
Similarly, he told The Financial Gazette — Zimbabwe’s number one business publication — there was also a need to curb smuggling, suppress imports and increase the country’s exports through incentivising producers.

“I believe that focusing on gold coins alone, for example, will be missing the radar,” Mugaga said.
This comes after the World Bank (WB) applauded the government’s recent policies, which have helped to stabilise both the exchange rate and inflation.

“To tame inflation, the central bank tightened monetary policy, raised interest rates, further liberalised the forex market and issued gold coins as a store of value.
“These measures have narrowed the parallel market premium from over 100 percent in April 2022 to below 35 percent in September 2022. It is important that exchange rate distortions are discontinued.

“In addition, fiscal policy will need to remain cautious, with no pre-election spending increases to contain prices from spiralling,” the Bretton Woods institution said last Friday.

This comes as the country has been facing a number of serious challenges, including electricity shortages and a rising local cost of doing business.

All this, coupled with imported inflation largely occasioned by the Russia-Ukraine war, has affected the country’s growth targets.
As a result, Finance minister Mthuli Ncube recently revised the economic growth projections down to 4,6 percent from 5,5 percent — citing the imported inflation, a poor agricultural season and the worsening power challenges.

Meanwhile, former State Enterprises minister Gorden Moyo told The Financial Gazette this week that while he agreed with the WB’s largely positive recent assessment of the country’s recent economic measures, it was important to bear in mind that Zimbabwe’s challenges were caused by a lack of policy consistency in the main.

“Over the past month or so, we have seen some kind of nominal stabilisation of the exchange rate. Control of the money in circulation, combined with other measures have also helped to stabilise exchange rates.
“One of the biggest problems in our country is a lack of consistency and enforcement. In the short-term, the Financial Intelligence Unit will relax, and the Reserve Bank of Zimbabwe (RBZ) will also relax,” he said.

Moyo, like Mugaga, also warned the government against the urge to print money ahead of the 2023 elections, saying this would result in further exchange rate distortions.

“As we move towards the elections, the RBZ will start printing money to buy cooking oil and soap for campaigns by politicians.
“There will be an appetite to use the minting machine, which will see exchange rates rising again. What is needed is fiscal and monetary discipline over and above the current measures,” he added.

Moyo also feared that the country would experience some challenges in the short-term due to the recent measures that had been put in place by the government.
“While there is seemingly some stability now, down the line we are likely to have another problem. On one hand, the government is encouraging the use of the local currency, but developments in the past month have been iron-fisted and have served to discourage the use of the local currency and the wider use of the US dollar.

“People will soon start resisting the local currency and this will cause it to become moribund. So, there is still a need to continue using the local currency, but at the same time we need to cut on the abuse of the local currency by money barons,” he said.

On his part, economist and former member of the RBZ’s monetary policy committee, Eddie Cross, said more efforts should be put into further liberalising the forex exchange regime.
“We need to liberalise the exchange rate system because gold coins are not a permanent solution. Indeed, they have helped, but they are not a long term solution,” he said.

Confederation of Zimbabwe Retailers (CZR) president, Denford Mutashu, also said that there was a need to ramp up production in all spheres of the economy.
“This is the surest way of backing up the local currency. There is also a need to make the local currency more readily available to the public.
“I was in Tanzania recently, they don’t accept the US dollar. They use their own currency and that is what we should do once again in this country.

“We, therefore, need to ensure that there is law and order around our currency. All those using social media to advertise exchange rates must be dealt with,” Mutashu said.
“It also takes the government to build trust in the local currency. We need to move forward and ensure that no one exchanges money outside the formal system,” he added.

Mutashu also observed that because of the current economic challenges being experienced in the country, a number of businesses were in distress — leading them to contemplate retrenchments.

“There is a great need to always understand the day-to-day challenges that businesses are facing. There is, therefore, a need to safeguard sustainability so that we don’t lose formal businesses.
“There is a need to move faster to align the economy so that we don’t continue to have the shadow economy which affects the formal economy,” he added.

Economic analyst Kipson Gundani said gold coins had helped to bring about an alternative way of preserving value in the country.
“What was happening before the introduction of the coins was that people were buying US dollars to preserve the value of their money. The gold coins have brought

an alternative source of preserving value.
“What we need to do is to sustain this. However, there is a challenge when it comes to procurement. The general appetite for forward pricing and consumerism is astronomical,” he said.

Gundani also said that there was a need for the government to fight corruption, especially in tender processes.
“Treasury also needs to continue to make sure that they are paying for value, while Parliament should be strengthened to provide an oversight role.
“The Procurement Regulatory Authority also needs to be strengthened to verify all the deals that are being done by the government because the government has to spend right,” Gundani said.
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