After reading all the dire predictions and prognoses given out by some economists before the Mid-year Budget Review and then listening to Minister of Finance and Economic Development Mthuli Ncube yesterday one is irresistibly reminded of the “Boys Own” serial magazines of early last century.
The hero at the end of one episode is left gasping for air in the coils of an anaconda or hanging on the edge of a cliff with his fingernails, and then, in the next issue “Up sprang Jack”.
But armed with the facts and figures, given in detail in the accompanying full 131-page document, which is well worth downloading and reading carefully, the Minister, as he “sprung up” in Parliament, was able to show the Zimbabwean economy was doing better than expected. This was thanks to all that hard work by the private productive sectors, with the Government’s fiscal discipline was not just as tight as promised but even better, despite the requirements of the measures to cope with Covid-19.
So, at the end of his brief summary speech, the minister was able to detail, in one word, the policy changes needed: None. What he stressed what that everyone had to continue doing what they have been doing since the beginning of the year, the private sector not just coping with Covid-19 but expanding. The Government handling its spending very carefully, making sure that every change in expenditure was backed by re-allocation or improved revenue.
Before the review the Confederation of Zimbabwe Industries, which represents and lobbies for a large swathe of productive businesses, laid down what it wanted to see: Continued adequate foreign currency flows through the auctions; continued tight fiscal control in the Government; continued tight monetary policies; continued access to electricity.
That is largely what the Minister delivered.
Foreign currency flows are good. This year the Minister reckons we can cope with a negative balance of trade, a small one of around 2 percent, because the productive sectors need to import more capital equipment and more raw materials to continue expanding. That will be compensated by more inflows from the diaspora plus the development aid, plus the net investment flow, plus the flows to NGOs and the other bits and pieces.
So he was very confident that the auction system, despite the greater demands being made on it, would cope without problems. There will still be a positive balance of over US$500 million on the current account, and that is healthy enough.
His fiscal discipline continues to be breathtaking. He had predicted a budget deficit of $7,7 billion in the first six months, and many thought it might be worse with the high level lockdown in January and February to cope with the second wave of Covid-19 and the slightly lower level lockdown now in place to cope with the third wave.
Instead he managed a budget surplus, $570 million. This was possible because revenue rose by just over $16 billion, largely driven by better corporate taxes, slightly more income tax from those private sector pay rises, more in transfer taxes and the repricing of many Ministry service fees to cost-recovery levels. After using part of that extra cash to eliminate his deficit, he used the rest to hire more nurses and teachers and raised his capital spending.
The extra spending on Covid-19 adjustments to social payments and his special support funds, interestingly came from the normal modest juggling within Ministry budgets.
The minister has built up this system of coping with emergencies through reallocating funds rather than raising spending in total, as we saw when he had to rush relief to areas hit by cyclones.
He was careful to compliment his colleagues on the other side of Sam Nujoma Street in the Reserve Bank of Zimbabwe tower for their tight control of monetary policy and money supply and managing the liquidity at just the right levels.
Electricity did come up in his speech, and he is keeping the funding arrangements going on the new power stations being built.
So basically what businesses say they really must have is being laid on.
His overview of the economy, which dominates that major back-up document, shows that Zimbabwe is doing better than predicted despite Covid-19 and despite other problems. That led him to predict 7,8 percent economic growth this year rather than the 7,4 percent he was willing to set down at the end of last year. That was an interesting political risk to take, but also shows his optimism that we are not just moving in the right direction but moving at an even better pace.
The overview includes a large block of pages, with photographs, of something close to the Minister’s heart and something he regards as a major achievement of the Second Republic, the capital spending. When the present team took over almost all taxes were being spent on salaries and other running costs.
Over the last almost three years, after bringing spending under control, a lot of taxes have been spent on the capital budget. So he goes into detail on the new dams commissioned, the road works, and all the other infrastructure being funded from income rather than borrowings. He even shows the new buildings, from hospitals down to a new cellblock at an open prison. That final bit of building is fairly basic, by the way, a bit like an illustration from a POW camp, but it will keep the rain off and being in an open prison does not waste money on thick walls or iron bars. Let us hope that some kind visitor donates a couple of packets of seeds and a bag of fertiliser so the convicts there can grow some flowers to soften the edges.
One major inherited problem facing the Second Republic is the huge backlog of debt, both domestic and foreign, created by its spendthrift predecessors who appear to have little idea of how to pay it back. The domestic debt is being worked on, and the reduction in interest charges helps to create those budget surpluses.
The foreign debt is now being tackled. Already the Government is making token payments, the Minister announced. These are opening doors, presumably by telling those we owe money that we are not deadbeats and not trying to repudiate our obligations. But arrears in interest dominate what we owe to the multilaterals, so there is need for proper discussions on how we can now proceed and in the end regain access to these funds.
The same approach is being used to implement the package deal made with the white former farmers to buy their improvements on the land expropriated for land reform. Again modest payments are being made, to show willingness, and now a British financial consultancy has been hired to help put together the funding required to get that albatross off our back. This again is important as we return to the normal world and will impress investors.
That compensation deal, incidentally, also rewards the right people. The land speculators get nothing. The genuine farmers who built dams, drilled boreholes, built stuff and upgraded their land will be getting fair value for those improvements.
While the minister must have enjoyed giving his review, and being upbeat over how the Government and the country are doing, there is now smoke and mirrors.
Every statement and prediction he made was backed by the data and facts he made available, and which, as we have stressed, should be studied by all interested or involved in our economy.