THEY came, we saw and perhaps nothing much was conquered in both the budget and monetary policy statements announced this past week.
As usual much hope had been placed and while seemingly significant strides were made to address the core economic problems more ought to have been tackled.
Given the extent to which the Zimbabwean dollar had become unusable, dollarisation had become inevitable.
However, more should have been done than just allowing everyone to charge in other currencies. Little consideration was put in place to cater for the transitionary period as the economy adjusts to the new order of business transactions.
Starting with the budget quite a few promising initiatives were taken. The realisation that the government cannot go on spending without much care for where the resources come from is indeed welcome.
However, one wonders for how long this can be kept up given lack of a clear revenue base. The budget also ushered in the reduction of NIPC and Zinwa mandates. On the other hand, this coupled with the widespread shift from the local currency to other alternatives is perhaps a subtle acceptance that policies over the last few years have been largely ill conceived.
The monetary policy pretty much continued with the tone set from the budget. The liberalisation of the foreign exchange market together with the reduction in licensing requirements for companies to transact in multiple currencies is definitely a welcome move for planning purposes.
And, finally, parastatals and other government institutions will be allowed to charge for goods and services in foreign currency as well. If properly implemented this should result in improved service delivery to the public with added viability on the part of the concerned institutions. Â
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On the face of it, the two statements showed a radical shift in policy from the myopia of previous positions. The removal of most pricing distortions and relaxation of various regulations are steps in the right direction. However, despite this, Zimbabweans are in for perhaps even tougher times ahead. Â
Without getting into the wisdom of the political timing of the announcements, both the budget and the monetary policy statements were based on one fundamental flaw; that companies and individuals alike have so much foreign currency lying around to kick-start the economy.
The reality is that this is not necessarily true. Take the budget statement for example, the major revenue stream is expected to come from taxes of about 30% of a US$5.5 billion gross domestic product after a 2% growth rate. Had we been in a normal scenario this could have been a reasonable assumption. Sadly we are not.
It seems we announced policies that jumped to a time when the economy was working like most others without much of the challenges we face today.Â
Little or no consideration was given to the transitionary period. For example while the economy had moved towards other currencies anyway, people still had holdings in Zimbabwe dollars.
These have essentially been rendered useless. Some form of convertibility of Zimbabwe dollar balances into other currencies would have supported these moves. The authorities do not have the resources to support this but simply passing that responsibility to individuals and other organisations is grossly unfair.
One could argue that suppliers should accept both local and foreign currencies but just watch the exchange rates that are going to be applied simply to discourage the use of Zimbabwe dollars.
Essentially most companies are going to have to start from scratch especially those that did not have sufficient reserves or access to foreign currency lines of credit.
All of a sudden there is going to be added pressure for businesses to pay for resources (labour, utilities etc) in foreign currency while not able to sell their goods and services at a similar rate.Â
Ideally the savings generated from the local market should service most of the financing required. However, without any convertibility of current Zim dollar balances supported by the central bank, a number of companies are likely to face significant challenges.
One can forget about a meaningful foreign currency credit market to emerge almost instantaneously. And getting external funding will probably be very expensive owing to the country risk.
It will take time for people to really gain confidence in the system. Unfortunately inconsistent policies have not done much to allay the market’s fears. Most players view the policies as somewhat ambitious and when the outcome is not as expected reversals of some if not all the measures will surely follow.
BY TICH PASIÂ
