Statement on Fiscal and Monetary Statements
The population is trying to understand what happened on 1st. October. Should they be happy, unhappy or indifferent?
As APA and in my own capacity, I have resisted from commenting to avoid the accusation that we are not giving Prof. Ncube a chance. After all, the appointment of someone like him is from the APA script. The challenge is that there is a significant body of the population, that is very interested in what APA thinks of the above event. What is also intriguing is that some of the people, who come up to ask for my opinion as I travel around the country, confess to being staunch ZANU supporters.
My first observation is that Zimbabwe will not come right until we get to understand what a TEAM with the potential to deliver top performance looks like. The Prof. is not a team, he is a member of a team. I believe that we do not need to elaborate this point. Whoever you are, just apply the team analogy to football and I am sure you will fully get my point and its significance.
To achieve the sort of team make up APA has in mind, had I been President Mnangagwa, I would, unsurprisingly, have followed a very different approach. Before appointing a cabinet, I would have approached parliament to change just one part of the constitution because I believe it is the only part that needs to be changed at this time. Cabinet should not largely be drawn from parliament. If a parliamentarian is appointed they should immediately give up their parliamentary seat upon accepting the cabinet appointment.
As you know we have a constituency based electoral system, so an MP is a representative of a regional “interest group.” A cabinet member on the other hand has the whole country as his/her constituency. Again I would like to believe this point does not need belabouring. Just look at how our system has produced Ministers who behave like MPs in order to make sure they can be re-elected in the next election round.
Back to the Fiscal and Monetary statements of October 1st. As usual, often what is not said is more important than what is said. Unfortunately both the Minister and the Governor have left us in that space where we have to guess what is really behind their chosen courses of action. More so because their actions are not consistent with the facts on the ground.
Let us start on a positive note. If I am not mistaken, it is the first time we have been treated to Treasury and Central Bank putting up an appearance of co-ordination. Given Prof. Ncube is the new entrant we can assume this is his initiative, and for that we say well done Prof. It shows an understanding of the need for co-ordination if any stabilization and turnaround program is to work.
The second positive for me was the attempt at transparency. Again, I think it is the first time the extent of government indebtedness has been disclosed formally. We have official confirmation of what we have known, but never had official admission of the extent of the problem. Now we have that and again congratulations must go to Prof. Ncube as we hope he will be allowed to continue in this same vein as we attempt to move forward.
In the spirit of constructive engagement, I wish I could come up with more positives. Unfortunately I cannot see anymore.
As we analyze the other side of the situation. The first major flaw has been the silence on what is killing the patient. All of us know the patient is dying. We did not really need to be told that. What we needed to be told was ‘what is killing the patient,’ what will be done to stop it and reverse the haemorrhaging. My view is that the prescriptions that both institutions have come up with are inappropriate and are skirting around the real issues.
After quantifying the size of the indebtedness, what should have happened next should have been the detailed and line by line accounting of where the money has been going. Over and above this approach being detailed and structured, it would have added to the transparency approach so that the whole nation can feel the challenges ahead are being shared with it. After all it is the nation that bears the burden as demonstrated by the Minister getting extortionate in the structuring of the transaction tax.
The minister is trying to change the mix of the sources of government funding as well as reduce the quantum of borrowing. In principle there is nothing wrong with that objective. The trouble is that he has rushed to increase taxes without thinking through the implications on the economy. The Prof. should have a better understanding than a lot of others in our population. The Zimbabwean economy needs to be unburdened of over-taxation. We are the most uncompetitive economy in the sub-region because government looks for all opportunities to get money out of people’s hands rather than aiming to get more tax revenues from a growing economy.
Raising the transaction tax creates opportunities for more spending rather than cutting down on spending. It also shifts responsibility to the already overtaxed citizen rather than putting pressure on the administration to cut down on wasteful spending. In situations like this, it is not only what you do, but also the prioritization and sequencing that will determine the efficacy of your actions.
Over and above it being wrong to start with increasing taxes, this action also has the added effect of shielding government from the need to take immediate action on reducing public spending. I suspect the Honourable Minister knows he will not be able to bring down government spending.
From an economic perspective one would have expected him to leave more purchasing power in the hands of the consumer so as to create a demand pull for local production. Reducing purchasing power will lead to consumers looking for the cheapest sources for their needs. We all know those sources will not be Zimbabwean!
So then, we would argue that increasing the transaction tax was not a smart idea.
Let us now turn to the actions of the Central Bank. When the bond note was contemplated, we told the Governor that it was a very bad idea. I am sure now he knows he erred, but will not admit it. The idea of clearly demarcated accounts as dollar or bond is an obvious one. What that more clearly accepts is that the bond note and the dollar are not the same. Yet our dear Governor continues to try and pull wool over our eyes. He is separating the accounts because he knows they are not the same yet in the same breath he goes on to claim a 1:1 relationship! This would pass for comedy were it not about our lives.
More importantly, however, is that the separation of accounts would, in a world with good governance, allow for better management of real dollar inflows. In our world, however, where power, nepotism, cronyism and patronage rule, it is an exercise in futility. The connected, who did not bring a single dollar into the country will still get access to USDs and abuse them as they have always done. They have access to their Bond Notes which they use to convert a piece of valueless paper to real money. The Governor should know by now that he will not be able to stop them. The question then is why is he doing this?
The most incomprehensible action is the statutory reserves element of the monetary policy statement. We all know that the mistrust between the Government and Central Bank on the one hand and the citizens on the other has led to the disintermediation of banks by and large. Any liquidity in the economy is not being channelled through the banks. It is in the streets of Zimbabwe. The Governor is going to impose a 5% statutory reserve to mop up liquidity! By definition this is statutory reserve applies to banks. I need someone much smarter than me to help me understand this one. My own opinion is that this is the governor’s equivalent to the Minister’s 2% transaction tax. Just as former Governor Gideon Gono raided FCAs, the incumbent Mangudya is raiding deposits to fund government spending. Sad that both men have from the get go started by trying to hoodwink the citizenry.
Generally speaking, saying I told you so is not a good thing, but I would like to use this event as a reminder of something we really need to understand. Minister Bernard Chidzero was a good and competent man. But as we all know, his political masters had no capacity to understand hence no commitment to implement what needed to be done. Another example I witnessed was Chinamasa when he was working in his area of competence. As minister for legal and parliamentary affairs he tried to be professional and do the right thing even towards MDC, but his masters only understood a political agenda. I mention these two cases to make Zimbabweans understand that until we have a head of state whose agenda is not politics first and economics a poor second and also has first-hand competence in business, we are unlikely to sort out our economic challenges.
All I can say is, good luck to us all. We are in the dung!