The business climate, on the other hand, affected by limited access to foreign finance; unfinished business on land security tenure and investment regulations; and high input costs, has not been conducive to attracting the much needed domestic and foreign investment.
In addition the increasing fiscal gap in the absence of external financing has led to a decline in private sector activity and a reduction in domestic credit as financial institutions try to contain foreign exchange induced demand pressures attributable to lending activities.
As if the above harsh conditions are not enough, the economic impact of the El-Nino induced drought also increased the need for imports to reduce food insecurity, whilst the decline in mineral prices depressed export proceeds. In addition, amid low investor sentiment, the appreciation of the US$ induced higher than expected demand for this currency, reduced remittances in US$ terms, especially from South Africa and the United Kingdom (following Brexit) and generated speculation.
With South Africa being Zimbabwe’s main trading partner – accounting for around 50% of total trade – where the rand depreciated against the US$, competitiveness has also been severely eroded.
Whilst efforts taken by Government to deal with the above fragile economic situation have been commendable, a stronger than anticipated impact of exogenous shocks highlighted above continued to exacerbate the economic slowdown and precipitated the decline in fiscal space and the cash shortage situation.
Walking the Talk within the above context of weak economic conditions requires policy precision and urgent implementation of necessary reform measures to transform the economy. The process won’t be easy but must be done.
It requires national sacrifice, sincerity and integrity. It requires the ability to share the adjustment or transformation burden across the board and between the fiscal and monetary policies.
Reliance on one policy instrument to manage the current structural imbalances would not be sustainable to transform the economy and to restore trust and confidence.
Overall, transforming the economy from a consumptive to a productive one requires fiscal discipline, production discipline, policy discipline, and message/communication discipline (speaking with one voice) in order to achieve the optimal levels of economic turnaround depicted by the following economic functional identities:
- Liquidity = f*(Exports/Forex Earnings)
- Exports /Import Dependence = f(Production)
- Production = f(Investment Climate/Incentives/ Ease of Doing Business)
- Investment Climate = f(Policy Measures/Policy Consistency)
* f is read as function of
(178 VIEWS)
