Has professor Mthuli Ncube failed ?
Understanding the TSP and the Austerity Program .
By Hosia Mviringi
Sun, 12 January 2020
DISCLAIMER : I am not an Economist and nether do I claim to be one.All information contained herein is subject to verification.I am a passionate layman yearning for knowledge.Reader discretion is advisable .
Professor Mthuli Ncube is a financial technocrat whose knowledge and experience is world renowed.Thats beyond any argument.But the most pertinent question on the mind of most Zimbabweans is whether or not to write him off as another failure or at worst an Economic mercenary or hitman planted amongst us to fast track the demise of our economy.
The truth is that Professor Mthuli Ncube is a well meaning patriot with a worldwide reputation to build and protect.This Zimbabwean experiment will bring the latest scruitny to his career as a financial Administrator.
First things first.
Prof Ncube was head hunted and brought home by none other than our very own revered Leader President ED Mnangagwa.
In his wisdom President Mnangagwa believed as HE still does today that Prof. Ncube is the right candidate for this highly esteemed job which can be equated to that of a nation's Prime Minister.
Prof. Ncube was and is not lost to the magnitude and uniqueness of challenges that need confronting in the Zimbabwean economy.
Prof. Ncube is to be judged on the basis of the performance of the TSP blueprint.
Transitional Stabilization Program was a collective program agreed to and endorsed by the Zimbabwean Cabinet which the President himself chairs.The program is not run in isolation or independent from other Ministries or organs of government.It has some benchmarks that need to be met and approved.
The TSP ran from October 2018 to December 2019 and it is the mother to what was later known as the Austerity measures.
Austerity in simple terms means _to live within your means, cut down on what you can't afford, stop craving things from outside, think how to improve yourself before stretching your hand to beg, avoid debt at all costs, be realistic about your capabilities, use what you already have to get that which you desire ( use of internal resources )._
These were the short term objectives of the Austerity measures which fed into the TSP whose broader objectives were to ;
● Stimulate Economic growth
● Increase revenue collection
● Institute Policy Reforms e.g ( Repealing of Indegenization Policy, POSA e.t.c )
● Encourage Transparency and Accountability ( Fight against Corruption )
I will try to expand and explain these in short.
During the TSP's Austerity measures the government managed to live within its means by stopping issuance of TBs and stoping all domestic or foreign borrowing.
The government during the same period managed to stop printing any physical and non-physical cash thereby suppressing all inflationary pressures to the economy.
By not borrowing any money the government created room for local funding of the Productive sector thereby closing the gap between imports and exports ( what is generally known as balance of payment ).This action translated into a reduced Trade deficit of $332million from a peak of $1.3billion and this is a significant foreign currency saving to the economy.
The country attained a Budget surplus of up to $732.7million in 2018 which is the first such milestone in the history of Zimbabwe.
This action also resulted in improved capacity utilization by local industries and resultant employment creation.
All these things were achieved within a period of a year during the subsistance of the TSP.
When Greece plunged into its own version of ESAP in 2010 the EU and IMF had to structure a rescue or support package equal to or surpasing the Greek GDP.
The package was around $110billion.They almost mortgaged the whole country if not already.
Yet Zimbabwe under Prof. Ncube has successfully maneuvered a belt tightening period without borrowing a cent.Isnt this amazing ingenuity ?
The government limited the amount of cash in circulation during the period to curtail any inflationary pressures arising from increased broad money supply.
As a result the nation has managed to attain a stable exchange rate for our currency.
The only set back during this period of course going forward is to do with effects of Climate change which we have no control over.A debilitating drought has reduced Power generation capacity and grain production thereby forcing the nation back onto the import market.
Thus Prof. Mthuli Ncube jas designated three priority benchmarks for financial year 2020.These three in no special order are ; Energy , Food Security and Currency Stability.
We hail Prof. Mthuli Ncube for being innovative and smart.During this period we will all contend that its not easy for small country like Zimbabwe to go through locally induced Austerity without any foreign funding.This was going to be worse than ESAP had it not been for his innovation.
When ESAP was introduced by the twin capitalist institutions of the IMF and WB it had little to no regard for the poor thus no Safety Nets were provided for resulting in the general suffering of the poor and vulnerable groups of society.
Under Prof. Ncube a 2% electronic transaction levy was introduced and this levy raised in excess of $300million in its first year.
This was an answer to one of the goals I mentioned above of 'Widening the tax base'.
This levy brought relief to vulnerable members of the communities as it provided subsidised transport through ZUPCO ( its this levy that's paying for new bused) , provided food relief to poor rural households, provided cheaper medical care to the old, poor and other vulnerable groups.
Under Transparency and Accountability target we all see how Toll Fees have been used to build new roads and mainatain old roads.In all the ten provinces one will testify that either a new road project is in progress or some maintenance is taking place using internally generated resources.But before this program there was apparently 'no money' to build roads.
Please bear in mind that during this comparative until now Zimbabwe has not borrowed any money, meaning that we have not added any debt to our books.Isnt this plausible ?
The 2% electronic transfer levy came as an innovative way of collecting tax from the unbanked public given the informal nature of our economy.In the old dispensation ZIMRA would engage in running battles with informal traders trying to enforce what was then known as the Presumptive Tax.
I think Prof. Ncube so far has proved to be a genius.
ESAP encouraged budgetary cuts ( austerity) but didn't offer any support to cushion the vulnerable members of society.
The masterstroke came when a local currency was introduced.
A local currency has numerous advantages which contribute to Economic growth such as ;
• Profit retention for local investment and reinvestment ( this creates more jobs for locals )
• Reduces the thirst for imports thereby saving foreign currency and boosting local consumption , industrial capacity utilization and employment opportunities.
The narrowing of trade deficit leads to the stabilization and strengthening of the local currency.
All this have the ultimate multiplier effect on the local Gross Domestic Product ( GDP ) and thus widening the government tax base.
As the economy stabilizes and grows the capacity by industry to pay better salaries also increases.The same happens with government when the tax base widens.Their capacity to pay Civil servants economic salaries increases.
But this does not happen overnight.As can be seen in this illustration the process is increamental and sequential.First things have to happen first before the others happen.
It is therefore my hope that with this new understanding we as Patriots will encourage compatriots in the Public Service to exercise a little more patience with the government.
A government can not increase salaries in the middle of cost-cutting measures.This is self contradictory and outrightly impossible.
This is the reality we must preach everyday for public servants to adjust their expectations in relation to salary increases.It is just not possible to increase salaries to desired levels at present.
All necessary fundamentals for economic growth are now in place because stability was achieved under the TSP.
Liberalization of the economy has the net effect of encouraging local investment while attracting FDI into the economy.
It removes abuse of subsidies in such sectors as the fuel industry and it does away with market distortions.
Its not a secret that business drives economies thus a business friendly economy grows faster.
Riding on these successes the economy is forecast to grow by a modest 3.1 percentage points in 2019.
On its own not a mean feat for an economy rising from ground zero.
Lets keep talking about it.
Kutsho mina !
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