We blithely continued to trade as if we had real money in our bank accounts until the magician arrived. He looked into his crystal ball and saw that the stuff we had in our accounts was in fact not real money, like the boy in the fable about the King who was persuaded that he was dressed when in fact he was naked, the magician turned away from his crystal ball and stated – ‘this stuff is not real money and it has no relationship to the US dollar’. What!! The reaction was immediate and in fact a bit funny if you look at it from the outside, we rushed to protect value – buying goods and assets and especially any that were valued at the false rates – like fuel and some other imports. The informal market for Bond and RTGS collapsed to 7 to 1, business began to think that Mugabenomics was back and they priced their goods as if the rate would continue to slide.
I do not think the IMF or the World Bank have any idea of just how this economy works. I think our real economy is worth perhaps US$55 billion – not US$19 or the new values ascribed in the budget. I pointed out last year that Zimbabwean financial institutions handled US$120 billion in financial transactions. Ecocash handling, by itself, double the financial transaction of all Commercial Banks combined. When the Minister of Finance in 2009 jumped off the bridge and lifted all controls – who could have predicted the result – in weeks all shortages vanished and we were trading in hard currencies quite freely. We had no reserves – not a cent, all our Banks and the Reserve Bank were bankrupt. In the succeeding 4 years the average growth in revenues, in real money, to the fiscus was 70 per cent per annum! Explain that.
So back to the budget, in my view we should have concentrated on balancing the budget – a planned deficit of $1,6 billion is just too much. In our condition we need a balanced budget. In addition, rather than spending three quarters of the budget trying to increase taxes and levies on the formal economy, we already collect near world record taxes, we need to free up the formal sector by rationalizing all the taxes that we pretend are not taxes – NSSA, Aids Levy, Training Levy, Standards Levy, Licence Plate charges, fuel levies – switch them from cents to percentages. We need to cut PAYE – tax free incomes up to $500 a month, wealth taxes on the real high rollers, reduce corporate tax to regional levels.
Then spread the net to make sure everyone shares the burden of financing government. Close the loopholes at our borders and collect $1,5 billion from imports, increase indirect taxes to spread the net as wide as possible. We must give the magician credit for a number of major initiatives – he has dealt with the fiscal deficit; we need to maintain that stance of no borrowing to meet recurrent expenditure. He has lifted import controls that were fostering corruption and artificially restricting supplies and given all Zimbabweans the right to hold real currency balances in their own accounts. This is the clearest evidence that the magician does not recognise the RTGS and the Bond as real currency on par with the USD.
But one major hurdle remains, and it is no use trying to imagine we can deal with that ‘gradually’. It is like saying a horse can go over a hurdle ‘gradually’. The issue is exchange control. In Zimbabwe this means we take real value from our exporters and transfer it to the consumptive sector. Right now this is destroying our cutting edge industries and boosting unsustainable demand in the consumptive sector. At the same time, it is fostering corruption on a large scale and distorting prices and costs throughout the economy. This simply cannot go on and in my view it must be dealt with immediately. The way to do that is to stop all assumption of control by the Reserve Bank of foreign exchange earnings and allow the market to determine the real value of the RTGS and the Bond. Eventually we need our own currency and a strong, independent Monetary Policy Committee or Board. Restore the freedoms of the GNU era and the Zimbabwean economy, like a race horse, will take the bit between its teeth and run the race ahead of us. I have no doubt it will win.
Eddie Cross
Harare, 24th November 2018
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