CZI Press Statement on the current economic situation in Zimbabwe

CZI Press Statement on the current economic situation in Zimbabwe
Photo credit: AP | Tsvangirayi Mukwazhi

22 Oct 2018

Despite that the challenges the economy is currently facing, we believe the economy has been performing very well as noted by the upward review of GDP growth by IMF and if we all do the right things, we will continue on this growth path.

The last two weeks have seen a dramatic collapse in confidence in the RTGS (real-time gross settlement) currency and spiralling parallel market exchange rates. The uncertainty over the value of RTGS has led to some businesses closing and others refusing RTGS money. Businesses are preferring to hold onto their stock whilst awaiting clarification on the value of RTGS.

We have also seen the prices of commodities increasing in the market even where the producers have not increased prices.

We note that this is a result of the imbalance between RTGS and Nostro accounts driven by the fiscal deficit and its financing through the creation of RTGS money.

We recognise that any turnaround measures should start by addressing the fiscal deficit. We welcome the following measures as highlighted in the Transitional Stabilisation Programme and implore government to implement these immediately:

  • Expenditure reduction through measures including right sizing public employment; cutting travel expenses; reducing fuel benefits; and curtailing vehicle acquisition.

  • Issuing Treasury Bills through market based auctions, and limiting new release to the minimum required for fiscal purposes.

  • Limiting the over-draft with the Reserve Bank to the Statutory level permitted by law.

  • Accelerating the restructuring and privatisation of state owned enterprises.

  • Eliminating budgetary subventions to state owned enterprises and using instruments such as government guarantees to support them where justified.

  • Retiring all civil service staff at retirement age and above

  • Moving to a market-based foreign exchange allocation system.

Government has come up with a sound fiscal adjustment programme. In order to give the market confidence that the programme shall be implemented successfully, government must publish relevant data timeously.

Given the critically low confidence levels in the economy we recommend the publication of the above start as soon as possible.

The proposed 2% transaction tax is designed to close the fiscal deficit and restore confidence in the RTGS system.

As matter of principle economies are not developed through over-taxation. However, we recognise that this tax was aimed at widening the tax base. CZI was therefore initially opposed to an uncapped 2% tax and had proposed a cap which would achieve the aim of widening the tax base without over taxation.

However, given the gravity of the current crisis in confidence, we recognise that it is vital that the fiscal deficit is dealt with immediately.

The 2% tax, as subsequently modified by the Minister of Finance on 5 October, with further adjustments in consultation with the private sector, should go a long way towards closing the fiscal deficit and restoring stability to the economy.

We therefore recognise the necessity of this tax as a short term shock therapy measure.

The alternative is to have incomes further eroded by run-away inflation,increased shortages and a general decline in well-being.We therefore call on all stakeholders to accept this painful necessity to stabilise the economy.

We also call on Government to play its full part in stabilising the economy and sharing the associated pain by implementing the measures outlined in the TSP and returning to a zero deficit position as soon as possible.

Given that through this tax, we are inflicting pain on the entire economy and assuming collective responsibility to correct government errors of the past, the government is obligated to be fully transparent by accounting for the collections and use of the 2% tax.

We must point out that this tax is not sustainable over any extended period of time as it taxes each stage of the value chain and negatively affects the growth and competitiveness of value chains.

We propose that the tax expires by December 2019 at which point we expect that Government would have adjusted its expenditure mix to match collections and more targeted ways of broadening the tax base will have been developed. In order to demonstrate sincerity on the part of government and give the market confidence that this is indeed only a short term shock therapy measure, the enabling legislation for this tax should be explicitly time-bound.

All sectors should be allowed to reflect this cost in their pricing.

Turning to the issue of supply of basic commodities, as long as adequate supply of official foreign exchange is made available, prices will remain affordable and our members will be working day and night to ensure product supply.

We would urge that all future policy pronouncements be done after a process of consultation. A formal multi-stakeholder review process should be established immediately to track progress on the implementation of the Transitional Stabilisation Programme.

We note that the economy has been growing despite the challenges and there is no doubt that if Government plays its part in restoring fiscal and monetary stability by living within its means, we will see a rapid stabilisation of the economy and continued growth towards making this country a middle income economy by 2030.

Transitional Stabilisation Programme

Reforms Agenda, October 2018 – December 2020

“Towards a Prosperous & Empowered Upper Middle Income Society by 2030”

The holding of a free, fair, credible and peaceful election on 30 July 2018, ushered in the Second Republic, allowing me to constitute its first Government. Our immediate task is walking the talk with regards to fulfilling the electoral promises and commitments we made during campaigns for office.

First and foremost, is embarking on the implementation of national development policy initiatives and programmes to transform our economy to realise Vision 2030, the UN Sustainable Development Goals, and the AU Agenda 2063.

This is a reflection of the collective determination and aspiration of the people of Zimbabwe for a Prosperous and Empowered Upper Middle Income Society by 2030.

This Transitional Stabilisation Programme, over October 2018 – December 2020, prioritises fiscal consolidation, economic stabilisation, and stimulation of growth and creation of employment.

Adoption and implementation of prudent fiscal and complementary monetary policies will anchor return of investor confidence lost over the past two decades, stabilising the macroeconomic environment, which is conducive for opening up to more business.

The Transitional Stabilisation Programme outlines policies, strategies and projects that guide Zimbabwe’s social and economic development interventions up to December 2020, simultaneously targeting immediate quick-wins and laying a robust base for economic growth for the period 2021-2030.

The Economic growth envisaged during the Programme period will inevitably be driven by the private sector, with Government facilitating a supportive macro-economic and business environment.

Focus will be on value addition and beneficiation, to realise higher value exports, and cushioning the economy from the vagaries of international commodity price fluctuations associated with over-dependence on export of raw commodities.

The success of the Programme will not depend on Government efforts alone, but on a coordinated collaborative multi-stakeholder approach.

This is critical if we are to overcome and redress the underlying challenges arising from economic fragility, joblessness, inequality and poverty.

This Programme, therefore, recognises the need for empowerment of women and youths, while also bringing to the fore key issues that improve the welfare of the historically marginalised groups, including people facing physical challenges.

I am, therefore, making a strong appeal to all stakeholders that we all put the Elections behind us, and collaboratively participate fully in the reconstruction of our economy.

On my part, I undertake to provide the political will needed to ensure full implementation of the Programme, mindful that this will entail pain and need for sacrificing short term gains for longer term prosperity.

Everyone has a responsibility in this economic reconstruction endeavour. This includes the academia, faith based and civil society organisations, embracing their grassroots structures and advocacy towards complementing Government efforts, and the media, central to the dissemination of information and general citizenry awareness.

Also critical will be our people in the Diaspora, whose participation in economic transformation initiatives goes beyond contribution through remittances and philanthropic work, and is targeted to include skills transfer and involvement in arising domestic investment opportunities.

Our Cooperating Partners will also be critical as efforts by my Government to re-engage the world gather momentum, including re-establishment of relations with the international financial community, critical to complementing domestic efforts to mobilise resources and build up development capacity.

Most importantly, the need for transparency and accountability by all stakeholders and citizens will be key for the transformation of the economy and realising the aspirations of Vision 2030.

I, therefore, commend the Transitional Stabilisation Programme for October 2018 – December 2020 to the people of Zimbabwe, and I urge all stakeholders to fully support its implementation.

I thank you.

Emmerson Dambudzo Mnangagwa

President of the Republic of Zimbabwe

5 October 2018, Harare

Source Confederation of Zimbabwe Industries
Website Visit website
Date 22 Oct 2018
  11 minute read
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