As throngs poured into the streets of Harare in seeming euphoria following the November 2017 military takeover of power from Robert Mugabe, there was little, if any, consensus as to whether the unfolding events constituted a coup or not.
The prospect of a general election in 2018 offers hope that the residual sky-high optimism could finally find vent in a legitimate ballot process. However, concern abounds that this could well make for a poisoned chalice for a country attempting to haul itself from over a decade of economic disrepair.
This is because Zimbabwe’s recovery demands a number of unpopular decisions that could prove costly for a political faction seeking election. Some of these issues include:
Expenditure overrun and the public sector wage bill conundrum
With a debt overhang, Zimbabwe was excluded from access to balance of payment support from the Africa Development Bank, International Monetary Fund and World Bank. The country needs to ramp up tax collection to meet fiscal demands.
Available data suggests that the economy has reassuringly maintained a path to fiscal mend for the better part of the last decade, with a discernible slowdown in the growth of tax revenue between 2014 and 2016.
However, expenditure overrun (i.e. actual exceeding planned expenditure) remains a pressure point, having stood at $ 902.2 million in 2016. With employment costs accounting for 65 per cent of aggregate expenditure, the new government is set for the litmus test of adopting unpopular policy adjustments that could see it slash its wage bill in the coming months.
Zimbabwe confronts the combination of low tax revenue and a high public sector wage bill as a proportion of both revenue and expenditure. To create more fiscal space for the government to support growth enabling capital expenditure, there will be need for more rationalization of expenditure on public sector wage bill.
Potential overreach with the bond note programme and a rush to de-dollarise the economy
In May 2016, the Reserve Bank of Zimbabwe rolled out an Export Bonus Scheme through which it would award exporters up to 5 per cent of realised receipts. The scheme, backed by a $ 200 million facility from the Africa Export Import Bank, would see the awards remitted to exporters in Zimbabwean bond notes (with the country having adopted a multi-currency regime in 2009).
In essence, the move was aimed at addressing two mutually reinforcing hurdles.
On one hand, the economy is caught in the stranglehold of dollar scarcity in a dollarised environment, the net effect of which has been disequilibrium in demand and supply for hard currency. The greenback exchange rate reached a premium as high as 25 per cent (Reserve Bank of Zimbabwe, August 2017) in the informal exchange market.
On the other hand, the Export Bonus Scheme bespeaks the urgent need for Zimbabwe to boost exports. Failure to do so will ensure a widening current account deficit, which could potentially amplify already tightened foreign currency liquidity conditions. Between inception and December 2017, $ 290.2 million worth of bond notes were disbursed through the Export Bonus Scheme.
Continued next page