There is an almost palpable anxiety, angst and trepidation among some Zimbabweans who are constantly bludgeoned by energy-sapping headlines insinuating the economy is about to fall off a cliff.
They point to intermittent fuel supplies, rising prices of basic commodities and the “alarming” fall in value of bond notes against the US dollar on the black market as sure signs that the end of the world is nigh. It is why we must contextualise President Emmerson Mnangagwa’s economic transformation plan, as captured by Finance and Economic Development Minister Professor Mthuli Ncube’s Transitional Stabilisation Programme (TSP) as presented on Friday.
The 388-page plan doesn’t disappoint.
With breath-taking specificity and particularity, the plan outlines in granular detail a diagnosis of the problems affecting Zimbabwe’s economy, and exact prescriptions and counsel to deal with them.
The TSP is exhaustive: it speaks to the concerns of ordinary citizens that travel long distances to get basic Government services such as birth certificates and passports in cities; it addresses the agony of depositors queuing at banks; it speaks to road users who are daily confronted by the menace of demons masquerading as drivers.
It tackles in great detail the frustration of people who are at the mercy of discourteous officers at Government institutions; and the agony of businesses — big and small — affected not only by punitive penalties and interests from the tax man, but by red tape as well.
Yes, it speaks to all these issues and more. It is perhaps the most detailed fiscal plan Zimbabwe has ever seen. If you think that is hyperbole, read it for yourself.
The TSP’s major thrust is to markedly cut Government expenditure and prudentially limit capacity to over borrow, while significantly boosting savings and the ability to generate revenues through production and exports.
But all this, as President Mnangagwa said a few weeks back in New York and Prof Ncube reiterated, will be painful.
Both the Reserve Bank of Zimbabwe and Finance Ministry agree that the cause of the cash shortages, a run-away black market and resurgent inflationary pressures are partly traceable to a Government which — starved of international lines of credit — is excessively borrowing (mainly through Treasury Bills) at a rate unmatched by revenue generation capacity.
Treasury says, “Government debt component is comprised of financing towards Command Agriculture, grain procurement, inputs support to the vulnerable households and various Government creditors including Zesa’s, NSSA and Zinwa, among others.”
This has created a huge stock of bank balances unrelated to real money. In a multiple currency regime, where money printing is impossible, depositors struggle to access cash.
The bank balances, which can be spent electronically, have created disproportionately high demand by consumers, and as the law of demand and supply dictate, prices have been rising.
In the TSP, Prof Ncube says, “RTGS balances are not matched to available US dollar balances, and therefore, sustain opportunities for rent-seeking, as banks ration cash withdrawals, highlighting the illiquid nature of bank deposits and high RTGS balances.”
The resort to TBs had gotten out of hand to the extent that as at June 2018, the stock of outstanding TBs stood at $6,7 billion, with a maturity value of around $8,3 billion.
Treasury is cutting Government’s appetite to fund expenditure through TBs and bonds through the following measures:
Issuance of TBs will be strictly aligned to the Parliament-approved borrowing requirement and votes under Appropriation. This will ensure no expenditure of public money is incurred on any service where provision has not been made by or in terms of the Public Finance Management Act or any other Act;
The Reserve Bank will only issue TBs via issuance of a Treasury Bill Issuance Note by the Accountant-General;
On maturity of TBs, the RBZ will seek written authority from the Accountant-General to debit the Government account. This will improve accountability for disbursements made from public resources;
Treasury will preside over a Fiscal and Financial Stabilisation Committee that will ensure strict adherence to fiscal and monetary targets; and
TBs will be issued through an auction system, while Government will revive issuance of bonds through development of a secondary bond market beginning 2019;
This should put a lid on Government borrowing and reduce debt.
Civil Service Reform
Treasury says the “civil service is too large and costly, and it operates at sub-optimal levels of productivity”.
The current civil service structure is top heavy, “with large numbers of senior grade appointments that are disproportionate to the number of extant line ministries and agencies”.
The new economic plan, through the Public Service Wage Policy, will cut the wage bill by $200 million in the 2019 National Budget and $130 million in the 2020 Budget.
Other proposals are:
Freeze on filling non-critical posts;
Enforcing Retirement Policy;
Introduction of a Voluntary Retirement Scheme;
Adoption of lean administrative structures;
New policy on Personal Issue Vehicles;
Rationalisation of Foreign Service Missions;
Reviewing conditions of service for locally recruited staff at diplomatic missions; and
Relating outlays on bonus payments to Budget financial capacity
Government will shed excess staff and “create a structure that is fit for purpose through a combination of retiring officers who have reached their mandatory retirement ages; the appointment of principal directors where exceptionally merited; and the alignment of ministerial mandates into more integrated and cognate clustered that will result in fewer line ministries, and their departments and agencies”.
Government’s new policy limits vehicles allocated to senior civil servants to one. Additional measures are proposed to curb abuse of the vehicles and limit fuel allocations.
It’s not all gloom.
Government, through the TSP, commits to improving service conditions of civil servants, including a new funded pension scheme that guarantees security after retirement.
By August 2019, Government will move away from the current unfunded Pay-As-You-Go arrangement by adopting a funded Defined Benefit Pension Scheme arrangement in line with international best practices.
The employer, Government and employees will be required to jointly contribute up to 16,5 percent of pensionable emoluments (a salary, fee, or profit from employment or office) in respect of members’ future pensionable service.
Not only is this expected to restore trust in Government’s pension system, but it will also provide an added pool of funds for development.
An elaborate scientific method will be used to develop measures that are designed to facilitate establishment of an equitable Defined Benefit Public Service Pension Fund.
Since President Mnangagwa appointed Prof Ncube to head Treasury, the market inferred, especially from the pronouncements that were being made by the former AfDB vice-president, that bond notes would be immediately scrapped and replaced by a local currency.
On Friday Prof Ncube clarified matters.
“Consequently, while a new and a more competitive currency appears to be part of the solution, it will be a challenge to introduce, given low confidence in its stability and little foreign reserves to support it.”
He noted that in the next two years, the TSP would create conditions supporting a new currency through enhancing business confidence, generating adequate foreign exchange reserves to anchor the currency, and sustained macro-economic stability through fiscal consolidation.
According to Prof Ncube, “Monetary authorities are moving to implement currency reforms, which will include measures to bring compatibility between banks’ deposits, RTGS balances and foreign currency resources on the market.”
Some of the key reforms under consideration are:
A convergence programme where exporters who are subject to surrender requirements, access export incentives funded wholly by importers benefiting from export proceeds generation;
Free trade for all foreign exchange not subject to surrender;
Increasing interest rates on RTGS balances to hold and rein in depreciation; and
Engaging the international financial community for improved access to financial support.
While depositors have fretted that their bank balances could lose value as happened in 2008, the Finance Ministry has indicated they will have a specific cut-off date by which outstanding deposit balances will be deemed hard currency deposits.
Non-hard currency deposits made after the specified date will be recorded as ordinary RTGS deposits.
In addition, all hard currency deposits undertaken by any exporters will be recognised as such, that way encouraging hard currency inflows into the formal banking system.
This will help “overcome erosion of confidence in the banking system as experienced during hyper-inflation when depositors’ entire lifetime savings evaporated overnight”, Prof Ncube said.
He went on: “As earlier alluded, this will entail increasing confidence in the stability of currency holdings by households and business as currency reforms progress.
“Critical elements will include citizens’ assurances over access to hard currency balance holdings with the domestic banking system, and their free conversion for both domestic and offshore transactions.”
Like many Zimbabweans, Treasury is concerned that “the enforcement of the law on corruption, both in terms of investigation and prosecution, has been unsatisfactory, with low convictions recorded”.
The new measures include imposing fines not exceeding $500 000 or not exceeding twice the value of the transaction that forms the subject of the charge, whichever is higher.
Civil Forfeiture Orders, which seek to recover proceeds from corruption, are also being mulled.
Further, Treasury will — through the 2019 National Budget — strengthen the ZRP, judiciary, NPA and Auditor-General; and implement the Auditor-General’s recommendations.
There are also targeted measures to curb smuggling by deploying equipment such as scanners; as well as improving the time people and goods are cleared at ports of entry.
Interest and Taxes
One of the key tenets of President Mnangagwa’s plan is to incentivise all businesses to stimulate production. Businesses have long complained about the high interest rates.
Currently, RBZ has put a 12 percent lending cap to the productive sector, and a 15 percent rate to the non-productive sector. Rates offered by micro-finance institutions are even steeper: three to 10 percent per month.
Government is working on cutting interest rates to eight percent. Prof Ncube intends to use tax as a vehicle for sustainable economic development. Official statistics indicate the extent to which the tax structure has impeded economic growth.
For example, of the $4 billion owed to Zimra, 23 percent ($1 billion) is interest and 27 percent ($1,1 billion) are penalties.
Said Prof Ncube: “Government will, therefore, be reviewing interest and penalties on tax defaults through implementation of the Penalty Loading Model from January 2019, as part of the Transitional Stabilisation Programme.”
For small businesses, Government intends to replace Presumptive Tax with a Simplified Low Turnover Tax at a lower rate of two to three percent from January 2019.
Tax processes and procedures will be simplified, while a lower overall tax structure will be implemented to support recovery of businesses and investment, including tax breaks and tax incentives for capital and value addition rebates.
The tax man has also been implored to administer policy in a sensitive manner, with greater appreciation of the different circumstances and peculiarities of businesses. There is also a drive to make Zimra an efficient entity. The TSP will endeavour to widen the tax base by:
Strengthening compliance levels of the over 4 000 big businesses estimated to be operating without registering for tax purposes with Zimra;
Enhancing capacity through training Zimra staff to net tax dodgers;
Reviewing interests and penalties on companies that are failing to pay taxes; and
Fighting tax avoidance and “to bring equity and standardisation in the application of the income tax structure applicable to allowances paid to all workers, inclusive of civil servants’ tax free allowances, which include transport, housing and representation”.
State Enterprises Reform
The Finance Ministry will plow ahead with President Mnangagwa’s plan to reform State-Owned Enterprises (SOEs) — which entails privatising 11 of them, including six IDC and 17 ZMDC subsidiaries.
Two SOEs and three IDC subsidiaries will be liquidated, while seven SOEs will be departmentalised under line ministries.
The TSP emphasises that the reforms will be expedited, and much pressure will be exerted on management at SOEs.
All parastatals are now required to have a strategic plan that measure the entity and individual performance against agreed targets. The plans will be submitted before year-end.
The reforms are getting technical and financial support from international financial institutions such as the AfDB and the World Bank.
To ensure prudential management of SOEs, it is now mandatory for all to have AGMs and submit annual reports to Parliament. Financial statements will be audited and submitted on time.
Another major issue is review of “unsustainable” and “unjustifiable salary and benefits” paid to executive management at SOEs that are technically insolvent, illiquid, or both.
Work on the remuneration framework is ongoing and will be brought to Cabinet soon. This is over and above the move that was taken in December to freeze salaries and benefits.
Government will continue to sell the Lima Plan to repay its arrears and service its debts.
The TSP will possibly offer creditors at the annual meetings of the IMF and World Bank in Bali Dusa Nua, Indonesia (October 12-October 14) a credible and viable plan.
Presidential Seal of Approval
The TSP has the Presidential seal of approval.
While Zimbabwe has come up with many other plans before, never have they been as comprehensive or as supported by the President.
In his foreword accompanying the TSP, the Head of State and Government reiterated he was fully aware that the policy prescriptions “will entail pain and need for sacrificing short-term gains for longer-term prosperity”.
He implored Zimbabweans to put their shoulders to the wheel to help the economic reconstruction effort.
“On my part, I undertake to provide the political will needed to ensure full implementation of the Programme, mindful that this will entail pain and need for sacrificing short term gains for longer term prosperity,” said President Mnangagwa.
“Everyone has a responsibility in this economic reconstruction endeavour. This includes the academia, faith based and civil society organisations, embracing their grassroots structures and advocacy towards complementing Government efforts, and the media, central to the dissemination of information and general citizenry awareness.”
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