Questions from the 2018 Zimbabwe budget that remain unanswered

In contrast, private sector borrowing will rise by just $400 million to $4.5 billion, which means that in 2018 government with 66% of total borrowing will “crowd out” the private sector.

None of this approximates the “strong adjustment” measures which the IMF in its July 2017 Article IV report on Zimbabwe said are necessary to set the economy on a path of sustained growth. Without such adjustment inflation would reach 30% in 2018, it said – a far cry from the budget estimate of 3%.

Money supply grew 41% in the year to September 2017 and with nominal output growing 10% (at best) inflation in 2018 is likely to be far above 3%, especially when the 50% devaluation of the currency in the parallel market is factored into the equation.

No-one can seriously have expected strong adjustment in an election year. This budget confirms that we are not going to get it. Nor, it would seem, are we going to get increased savings in a year in which inflation will rise sharply while Minister Chinamasa and no doubt RBZ Governor Mangudya, pressure the banks to lower interest rates. Policymakers, it seems, have short memories. The lessons of negative real interest rates during the hyperinflationary years have already been forgotten

The Minister was silent on the critical issue of the exchange rate. The hard truth is that a sustained economic revival depends on the country having a competitive exchange rate. Measures such as increased protection for industry, local content regulations and the 5% export subsidy are sticking plaster solutions, while “internal devaluation” – a slow and lengthy process- depends on effective measures to cut government spending and borrowing.

Also missing was a serious discussion of the debt situation. The Minister spoke optimistically about re-engagement with the international community and the resurrection of the Lima arrears clearance plan, but he did not dwell on the domestic debt crisis.

This is hardly surprising. After all, when Mr Chinamasa took over as finance minister in 2013, domestic debt was very small. Less than 5 years later, on his watch, it has surged to $6 billion, growing at 0.8% of GDP each month and set to increase by another 30% next year.

Worse still this is foreign currency debt, meaning that the distinction in the official figures – and that includes IMF reports – between foreign and domestic debt is artificial. The debt is denominated in US dollars, which cannot be inflated away as the Zimbabwe dollar debt was in the early 2000s.

The primrose path is paved with good intentions. Mr Chinamasa’s promises of a New Economic Order are welcome, but turning these into actuality is a different matter. That the same singers are singing different songs may – hopefully – mean that they accept that for 38 years, over which time real per capita incomes have fallen, they have been getting it wrong. Alternatively, it may mean that their conversion to something closer to economic rationality has more to do with survival instincts than recognition of their accumulated past failures.

By Anthony Hawkins for The Source

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