The Government’s economic reform programme, expressed through the Transitional Stabilisation Programme (TSP) and fleshed out in the 2019 Budget Statement, is already working rather well with Minister of Finance and Economic Development Prof Mthuli Ncube able to give concrete examples this week.
The fact that he basically balanced his spending with revenue in his first two full months – September and October — in the hot seat shows that there is a new determination at the centre to fix the major underlying problem Zimbabwe has faced since independence, a lack of discipline in Government spending and gross over-borrowing or even money printing.
This led to appalling cycles of minor boom and major busts with the country never really breaking out into the sort of sustained growth that other developing countries have managed.
Borrowing in itself is not evil. Most countries run a budget deficit, but not of the sort of level that has typically been the case in Zimbabwe. And Prof Ncube is right to press for balanced spending since his room to manoeuvre is very limited considering the present levels of accumulated debt, levels that have fuelled many of our other problems.
Even his 5 percent borrowing requirement next year is higher than many countries allow, albeit the deficit is entirely on capital spending, not paying the monthly bills, and although by Zimbabwean standards it is very low.
This strict control of spending and more collection of taxes has in turn created a second achievement, halting the growth in money supply. Zimbabweans, or at least those who lived through the 2000s, should be more aware than most people on this planet of the dangers of runaway growth in money supply. We still bear the scars.
The effects of that growth in money supply were contained for sometime, but we saw last month what eventually happens, a sharp jump in inflation. Prof Ncube is correct that the sudden sharp jump in prices, was a one-off jump, not the start of a sustained inflationary spiral, simply because the extra money supply is not that large and because he has turned off the taps.
He has also taken other measures, and he was more coy here. But a batch of decisions and announcements is going to cut expansion in consumer demand. He has put in place three modest new taxes, his 2 percent transaction tax, and the soon to be implemented extra tax on fuel and cigarettes. These are all consumption taxes and will help cool enthusiasm to spend and as well as help him balance his books.
In addition to this was his decision to make those importing consumer goods to pay duty in foreign currency rather than swipe across some RTGS dollars. This again will tend to reduce demand for imported consumables, as there is not that much money floating around to fund the duties, and as a small bonus push more available foreign currency away from the parallel market and consumption and back into the official reserves and production.
As he noted the fourth economic problem was the imbalance between our export earnings and our desire for imports. That imbalance has been fed by the growth in money supply, in turn fed by big budget deficits, but is also a result of the general insatiable Zimbabwean demand for foreign goods. The Government was not the only entity borrowing more than it should to spend on consumption. Far too many households were doing the same.
So while getting recurrent expenditure below the tax revenue is the core critical goal of the Finance Ministry, as this at least prevents other problems becoming worse and in some cases starts curing them, other measures were needed to help Zimbabweans rethink their personal spending priorities. And the minister has not been shy in implementing these.
He at least realises that in general finance ministers, like financial managers in all sectors, will never be popular. No one wins popularity by denying spending and by collecting taxes. But treasurers can be good, and so be unpopular and respected, or they can be bad and so unpopular and despised.
But Zimbabweans need to understand that none of the quite remarkable achievements of the last few months in creating the conditions for growth are instant solutions to our economic woes. There are no magic wands, although some try to suggest there are, as an opposition petition drawn up by economic illiterates yesterday shows. If we cut taxes and raise spending we will crash, and crash fairly soon.
It is going to be hard slog, the minister month after month, and year after year, balancing his books, making sure taxes are paid and saying no fairly frequently to many of his colleagues. But as he does this month after month we will see results, small at first then growing. It took time for us to crawl into our present mess.
It will take time to climb out. But this time we must be determined to end the Stop-Go cycles in our economy. We have wasted so many opportunities: the peace dividend of independence, the reforms of the 1990s and even the switch to multi-currencies to name but three. Each time we were given a second chance we squandered it on luxuries and trinkets that were soon eaten, drunk or broken.
Now we are doing it properly, and this time without the gimmicks.