The Transitional Stabilisation Programme (TSP) has managed to stabilise the economy, priming the country for sustainable and inclusive growth, but economic analysts have said the interventions have come at some expense with regard to social services delivery.
The TSP, which entailed roll out of austerity measures was adopted by the Government in 2018 to correct several structural flaws, stability and recovery.
Economy experts say it normally takes up to 18 months for reform efforts to show signs of economic recovery where austerity measures have been implemented and the Government appears to have struck the right chords as the benefits of the reforms bear fruit.
Authorities have managed to stabilise the exchange rate after introducing the auction system, which replaced the interbank and the temporary fixed-rate regime adopted in March, and this has had a positive impact on the prices of goods and services now largely stabilised.
On Tuesday, the Zimbabwean dollar firmed 1,2 percent for the second consecutive week against the United States dollar to 81,70 with price stability continuing to hold.
The effectiveness of the foreign currency auction system was buttressed by the latest inflation figures released by the Zimbabwe National Statistical Agency (ZimStat).
TSL reported that independent auction volumes at Tobacco Sales Floor (TSF) at 5,7 million kg were 73 percent below prior year “owing to the smaller tobacco crop, the later start to the tobacco season and auction floors not receiving the requisite approvals to decentralise”.
According to the statistics body, the country’s annual inflation rate declined to 761,02 percent in August 2020, down from 837, 53 percent in the previous month. Prior to the introduction of the auction and tight regulatory controls on mobile wallets, Zimbabwe experienced rapid inflation increases from a lowly 5,39 percent to a post dollarisation peak of 837 percent by June 2020.
Without a systematic exchange rate determination system and excessive liquidity on the market, sometimes without anyone having a clear understanding of its origin, the market depended on its whims and cues from speculators, which saw most businesses use forward pricing strategies to stay ahead of rate fluctuations and inflation.
Zimbabwe had used a multi-currency regime dominated by the United States dollar since February 2009 when it dumped its inflation ravaged local currency after inflation reached global record highs for a country in a non-war situation. The country’s hyperinflation had cloaked 231 million percent at the last official count in July 2008.
Speaking at a recent online policy dialogue on the economy — reflections on TSP promises hosted by the Zimbabwe Coalition on Debt and Development (ZIMCODD), University of Zimbabwe department of politics and administration’s Dr Tawanda Nyikadzino said on a scale of one to 10, the economic blueprint had achieved eight out of ten on overall stabilisation but was low on stimulating growth.
While the 2020 National Budget prioritised stimulating economic growth, this was shuttered as a result of the pandemic which severely rattled global economies.
On stimulating growth, Dr Nyikadzino rated the TSP at three out of 10 or 30 percent.
“In terms of stabilising the economy as well as enhancing financial stability, TSP had done so significantly. However, this stabilisation was realised at the expense of social services such as health delivery services and education,” he said.
Dr Nyikadzino said the TSP, covering the period 2018-2020, had made significant strides in helping cut the huge wage bill as well as the narrow budget deficit. Among its key objectives was to cut the fiscal deficit, which was identified as one of the most distortionary factors during the old dispensation. Deficits turned into surpluses since January 2019 and a surplus of $800 million was recorded between January and June 2020.
Another aspect to be addressed by the blueprint was prioritising Government expenditure towards areas with the highest social impact after it was established that much of the revenue collected went towards an unsustainable wage bill at the expense of service delivery.
The TSP’s target was to reduce the wage bill from 68,9 percent of total expenditure in 2017 to 50 percent by 2020 and this has since been achieved.
While the stabilisation blueprint brought stability, the austerity measures implemented were deemed too harsh for the common citizen. Speaking on the same platform Ambassador Chris Mutsvangwa said the TSP was a document based on a template from the International Monetary Fund on aspects such as managing Government expenditure and encouraging the country to live within its own means.
Ambassador Mutsvangwa said the country was now on the right and sustainable path to economic recovery after several interventions were put in place to weed out speculative economic activities as well as restore the confidence needed to grow the economy.
The TSP blueprint is anchored on the objectives of Vision 2030, which should see the country transform into an upper middle-income economy by 2030.
In 2018, the economy grew by 3,4 percent against the TSP target of 6,3 percent. In 2019, the economy contracted by 6,5 percent against TSP target growth of 9 percent while in 2020 the World Bank projects a decline of 10 percent due to Covid-19, against a TSP target of 9,7 percent growth.
Economist Eddie Cross this week said the stability had reached a point where prices may start to fall while monthly inflation for September is expected to be at sub-zero levels.
“You have to watch the month-on-month inflation rate. I see monthly inflation coming down steadily. In August it (Blended Inflation) was 1,4 percent or something like that and I am expecting that in September it is going to be negative, as prices will start reducing. And at the end of the year it has to be down to below single digit and for next year, we expect very low (annual) inflation and might be down to 4 percent,” Cross said in an interview.