NEWLY-APPOINTED Finance and Economic Development minister Mthuli Ncube faces the unenviable task of navigating Zimbabwe’s stuttering economy through serious challenges and will need to make tough decisions.
BY TATIRA ZWINOIRA
The urgency of addressing these challenges is evidenced by the meeting, which Ncube had with 50 business leaders at a Harare hotel last Wednesday, two days after his swearing-in as the new Treasury boss, to discuss challenges faced by business.
He also sought proposals on how government and business could work together to kickstart the economy and accelerate growth.
Here are some of the challenges he needs to address as a matter of urgency.
Foreign currency shortages
The central bank has been battling to get adequate levels of foreign currency to support industry in importing critical raw materials for their production operations.
This struggle has been playing out in recent weeks as evidenced by shortages of drugs, wheat and cement.
Early this month, failure to avail $12,5 million in foreign currency for a 30 000-tonne consignment of wheat at Mozambique’s port of Beira has now led to possible bread price increases from $1 to $1,10 a loaf.
This is because the Reserve Bank of Zimbabwe (RBZ) only has about $230 million on average of forex for imports per month, of which fuel, cooking oil and electricity chew more than half, leaving little forex for other critical sectors.
When the RBZ is not allocating the $230 million in forex, it is left to the banks to allocate an average of $384,6 million and they have to do it in a way that does not deplete their nostro accounts.
So dire is the situation that Foreign Affairs and International Trade minister Sibusiso Moyo recently called on the diaspora to refocus their efforts on building the country.
The diaspora is Zimbabwe’s second biggest source of foreign currency delivering about $1,8 billion to $2 billion per annum.
Foreign currency shortages are due to low foreign direct investment averaging less than $400 million a year, multilateral institutions are not lending to a government that owes them $5,2 billion, low investor interest due to bad policies and low exports.
This is why addressing the forex shortages will not only support industry leading to increased production and, therefore, exports, but also address liquidity constraints.
Before he became the Treasury boss, Ncube said external engagements with partners would help Zimbabwe access fresh lines of foreign currency, something he reiterated after he was sworn in.
These key partners include the International Monetary Fund (IMF), World Bank, Africa Development Bank (AfDB), Chinese Import and Export Bank, and the Trade and Development Bank, among others.
Cash shortages have been worsening since mid-2016 as consumers have continued to hold onto more money due to banks putting caps on withdrawals as the cash situation worsened.
While banks were merely trying to preserve the money they had by putting withdrawal caps, this has had the unintended effect of depositors losing trust in these institutions.
Cash in the market has been dwindling as the economy has become dollarised, putting more pressure on foreign currency as it caters for both external and local requirements.
Today, withdrawal caps average $20 with a few banks offering $50.
Compounding the situation further is that earlier this year banks were seemingly making deliberate efforts not to disburse cash.
In fact, in July, Bankers’ Association of Zimbabwe vice-president Benefit Washaya hinted that they were considering not disbursing cash to depositors, further eroding trust in local banks.
The loss of trust has led to people holding more of the cash they get and keeping it at home.
On average, cash in circulation has been ranging between $350 million and $400 million per month with bond notes and coins making up over 95%, yet cash deposits are estimated to be lower than $100 million.
Ncube will have to deal with this in order to restore confidence in banks to get depositors to redeposit cash into the banks.
Before his swearing-in as Finance minister, Ncube said to address the cash situation, “the immediate course of action is to remove the bond notes and then let the US dollar become the core currency, but over time we have to bring back the Zimbabwe domestic currency”.
Dealing with the budget and trade deficits
In the first quarter of the year, government’s budget deficit more than doubled the initial budgeted amount to $231,85 million from $102,54 million with indications of it further widening.
Between February and July this year, since January trade figures are not available, the country’s trade deficit rose 27% to $1,48 billion from the 2017 comparative amount of $1,15 billion.
Due to these two deficits, government has been failing to get money to fund its expenditure and have enough foreign currency to ease the liquidity crisis.
In the 2018 first quarter, the budget deficit rose due to increases in equity participation lending, capital transfers and employment costs.
Imports during that period grew because of rising demand among industry players.
As such, Ncube will have to control government’s recurrent expenditure, capital expenditure and imports to have more money for government spending whilst improving exports.
could be done by cutting the bloated wage bill to free money for government spending and capacitating industry to lower their import requirement.
Before he became Treasury boss, Ncube said Zimbabwe should look everywhere — not just East, not just West — to improve trade.
On expenditure, he said there would be need for fiscal and monetary policy coordination.
Clearing the World Bank debt
While government has external arrears of $5,2 billion, multilateral partners have shown eagerness to support Zimbabwe with fresh lines of capital if it can at least deal with the World Bank debt of $1,2 billion.
Dealing with the debt could unlock fresh capital not just from the World Bank, but other multilateral institutions though government would still owe a considerable amount in arrears.
Ncube is on record saying the issue of debt to the World Bank and AfDB ($600 million) would have to be addressed urgently before tackling the Paris Club debt, which is about $4,5 billion.
Improving revenue collections
In March, the Zimbabwe Revenue Authority (Zimra) discovered that 80% of firms owed $4,2 billion in unpaid taxes.
At the time, Zimra commissioner- general Faith Mazani said “such a tax debt position is reflective of an abnormal revenue administration and very low levels of compliance that requires our urgent attention”.
In order for government to have more money in its coffers, it needs to focus on more revenue-enhancing measures that create trust among taxpayers.
Zimra has tried doing this by putting in place measures to weed out corruption among its staff through automation, asset declarations and lifestyle audits.
Ncube could do this by lowering taxes, which would free up more money and allow companies to invest more and improve jobs.
At the launch of his SMART Manifesto during the election campaign, opposition MDC Alliance leader Nelson Chamisa said companies and citizens were being taxed to death and there was need to be more competitive.