eBusiness Weekly
Golden Sibanda
TREASURY has completed drafting details pertaining to disbursement of the $18 billion stimulus package to drive economic growth and recovery to address the negative impact of the Covid-19 pandemic.
Business Weekly could, however, not get the finer details of the bail-out fund yesterday, as a statement summarising the bailout package’s structure had not been signed off by Finance and Economic Development Minister Professor Mthuli Ncube.
Secretary for Finance and Economic Development George Guvamatanga, confirmed saying the full details of the funding were ready although he was still polishing up an official statement in this regard.
“We are finalising, in fact I have a statement, which I hope will be issued this afternoon, probably in the next hour,” Guvamatanga said, but the document details could not be obtained by the time of going to print.
The final stimulus document will provide full details including channels of disbursement, procedures for loan application, participating banks, eligible borrowers, tenure and interest rates among others issues. The stimulus package seeks to address the ravaging effects of the Covid-19 pandemic, which has killed hundreds of thousands and infected millions globally, disrupted global supply chains and shuttered economies.
It is expected that global economies of countries affected by the health crisis may suffer their worst economic growth rates since the World War Two, while others may actually plunge into recessions.
The International Monetary Fund’s (IMF), the main reference point for assessing the economic impact of Covid-19, believes global growth will shrink by -4,2 percent, a difference of 7 percentage points compared to the projections published before the outbreak of the pandemic.
Mthuli had projected economic rebound of 3 percent this year after droughts and cyclones Idai and Kenneth that ravaged parts of Eastern Highlands and Masvingo condemned the economy to an estimated 6,5 contraction last year.
In a position paper titled “CZI Policy Response Paper 1”, submitted to Treasury three weeks ago, the influential industrial grouping suggested that a highly calculated approach to deployment of resources under the multi- billion, subject to being reviewed upward, was critical to avoid unintended consequences.
Treasury sources earlier indicated that the Covid-19 package will be financed from at least US$300 million regional loan facility, nearly $2,5 billion from the Reserve Bank of Zimbabwe’s productive sector facility, $1 billion from statutory reserves to be returned to banks for on-lending, $4,5 billion from State guarantees to companies and individuals and around $2,5 billion national budget supplement.
Guvamatanga, however, allayed any fears that Government would destabilise the economy by funding the package through running the printing press. But CZI has warned of potentially devastating economic implosion through rapid money supply, exchange rate volatility, inflation and total currency collapse due to any policy missteps resulting from efforts to revitalise an economy negatively impacted by the Covid-19 pandemic. The industrial grouping noted that even before the global pandemic, the Zimbabwean economy had its own underlying conditions, making it more susceptible to shocks and likely to experience devastating effects from them.
Zimbabwe’s annual inflation has raced from 5,39 percent in September 2018 to over 700 percent in April this year while the official exchange rate had climbed to $2,5 against the US dollar before a fixed rate was adopted in April to minimise potential Covid-19 induced price instability.
“The country is walking a macro-economic tightrope. Any missteps will likely result in a dramatic upsurge in inflation and the total collapse of the currency,” CZI said.
Zimbabwe’s economy, the manufacturing representative body pointed out, was already suffering from a coterie of economic ills like price distortions, unfunded subsidies and quasi fiscal operations.
Further, falling confidence, rapid money supply growth, declining exchange rate and rising inflation were among the myriad of factors forming an albatross on the wobbly economy.
CZI contends that not only do these economic factors present unimaginable major risks to Government’s vision of middle income status by 2030, but threaten Treasury’s already weak finances.
And so, CZI cautioned, that while the Government had recently announced an $18 billion stimulus package for the economy, to limit the impact of Covid-19 and rekindle production, this could be the “medicine the economy needs or turn out to be the poison that kills the patient”.
The industrial lobby called for careful calibration and targeting of the proposed stimulus package to minimise negative impact of the Covid-19 response stimulus on domestic macro-economic stability.
It also proposed the creation of a two tier exchange rate management system with a crawling peg combined with a market tier system to guarantee formal access to foreign exchange for all businesses.
Further, CZI recommended maintenance of strong fiscal and monetary discipline to ensure the stabilisation of the currency, strengthening of institutional arrangements and stimulation of production and productivity.
CZI has therefore recommended very careful monitoring of the macro economic environment, with Government standing ready to scale down the stimulus package at any time if adverse effects arose.
“We have a history of financing packages including the Millennium Economic Recovery Program (MERP), Productive Sector Facility (PSF), Parastatals and Local Authorities Restructuring Programme (PLARP) and Command Agriculture just to name a few.
“They all have one thing in common, they were financed by high levels of money creation and resulted in devastating macroeconomic instability.
“There is very little doubt that the economy would have been far better off without these attempts. This is not to say that stimulus packages are never justified.
“There are cases when they are justified. And indeed this Covid-19 pandemic is one of those cases. We therefore recommend proceeding with extreme caution ready to stop if evidence of macro instability surfaces,” industrial body said.
The objectives of the stimulus include mobilising resources to fight the Covid-19 pandemic, sustain vulnerable groups, resuscitate economic sectors badly affected by Covid-19 such as tourism and hospitality and rebuild production in other sectors such as manufacturing and mining.
