Monetary, fiscal policies: The equivalent of a two legged stool?

Monetary, fiscal policies: The equivalent of a two legged stool?
Published: 11 October 2018 (151 Views)
ON October 1, 2018, the Reserve Bank of Zimbabwe (RBZ) issued its rather long monetary policy statement (MPS).

Empirical evidence has shown that ordinarily, the length of such a statement is inversely proportional to its importance or usefulness, and directly proportional to its confusion making capability. This was no exception.

Pandemonium reigned soon afterwards, as the markets became disoriented, dizzy and confused.

At the centre of the confusion was the belated admission by the RBZ that among the multi-currencies in use in Zimbabwe was a local one with two or three pseudonyms viz the bond note, plastic money and the mouthful "Real Time Gross Settlement Foreign Currency Account — RTGS FCA! No wonder the markets were literally throwing up, with the local currency in vertigo inducing free fall. But in denial, the RBZ was insisting that the exchange rate of this currency or "token money" was still 1:1 to the United States dollar. No one believed the Bank. Its reputation is not the best in the World.

On the same fateful day, by way of treatment, the Treasury Chief, Finance and Economic Development Minister Muthuli Ncube, prescribed a 2% electronic money transaction tax, to balance government books. His intention was to tax the informal sector, which now is arguably larger than the formal sector. It may turn out to be a master stroke.

Developmental economists have argued for decades that the informal sector in developing countries competes unfairly with the tax paying formal sector, and also denies government of funds for social services and other public goods.

Critics, however, point out that the informal sector in countries such as Zimbabwe is a hand-to-mouth affair, and taxing it is akin to milking a starving cow. They further observe that such a sadistic and regressive tax regime is what the capitalistic world wants to see before riding to the rescue.

The theory is that there must be wailing and gnashing of teeth, plus blood on the floor, so that the consequences of fiscal profligacy be permanently etched on the psychic of the nation- permanently embedded in the national memory, while arousing international sympathy necessary for the rest of the World to assist. The hope is that when it comes to selecting national leadership in future, the populace will do so diligently. Critics further noted, however, that the dubbing of the 2% transaction tax as an "austerity measure" was deception at its worst.

Government, to save its own skin, was sacrificing the poor and out of work to keep its fiscal profligacy, bloated ranks and obscene perquisites enjoyed by its senior corps intact. Its overriding ambition is to stay in power, and therefore in possession of the keys to the cookie jar, which jar happens to house both Treasury and the RBZ.

There is some truth, of course, to all these unkind and negative sentiments. Belatedly, the minister was forced to suggest that proceeds from the 2% tax would be ring-fenced for social services, such as healthcare and education, accessed by the poor as the elite prefer better quality services offered abroad.

The minister dubbed the MPS and his fiscal strategy, with its 2% transaction tax, the Transitional Stabilisation Programme (TSP) running from October 2018 to December 2020. The enthusiastic tax raising and half hearted cost reducing exercises read together with the MPS, however, looked like a two legged stool, not exactly the foundation of a piece of sound economic growth engineering project.

A fire sale of State-owned enterprises and parastatals is on the cards, as part of the treatment. But the political and economic landscapes are so confused and volatile that very little cash or investment may be raised from the exercise. Generally, FDI is not guaranteed.

The toxic fundamentals, if not personalities too, also attract the worst forms of vulture investors, the asset strippers. It is debatable whether or not in its state of mind, and given the constrained time frame, the government of Zimbabwe is able to navigate its way diligently, without corruption, through the minefield that is the disposal of national assets and awarding of mining concessions. The fact that the World Bank is involved in these activities may be some consolation.

The stabilisation period may also see the small manufacturing industrial base, in the country, going down the tube as demand shrinks in sympathy to decreasing disposable income.

The operating environment is further worsened by distorted costs, expensive money, high taxes, poor services, and high levels of arbitrage in the economy. It is important, therefore, that by the second year of the TSP, at least a third of the national balanced budget be directed at hard currency generating or genuine, high value adding, and import substitution investments.

Such Public Sector Investment Programmes or Domestic Direct Investment is a vital component to the success of the TSP, and thereafter to wooing FDI. That this will be the way forward will become apparent should the minister table before Parliament this November 2018 a three-year budget for the period January 2019 to December 2021, as he ought to do in line with good governance and the quest for transparency. Investors need the information going forward.

Key to strengthening the third leg of the stool, the innovation, investment, production and increasing productivity leg, apart of the above narrative, is conclusion of the land reform program. More than $10 billion remains locked in the dead asset that is A2 and A1 farm land. The British seem willing and keen to see the issue resolved in a civilised way through arbitration. The Minister of Lands and Agriculture seems happy with that strategy, recently telling parliament that beneficiaries of the land reform program were duty and morally bound to compensate any farmer dispossessed of their property in the land reform programme.

Accordingly, therefore, it is the hope of the nation that the arbitration referred to above will lead to a $5 billion grant to be disbursed over five years for use as a revolving mortgage fund for the purchase of farms by eligible farmers, be they black, yellow or white.

That would see some white farmers compensated for their land, some buying new farms, alongside their colleagues of colour, and some restored to their farms. With 50% of those dispossessed of their farms, or those offered such farms, now retired or deceased, the legacy issues to the programme should be concluded easily and swiftly.

Closure of the land reform programme is the third leg, and sine quo none of the TSP. Without that, there is no salvation.

Tapiwa Nyandoro writes in his personal capacity

- newsday


You May Like These Videos


There are no comments.

Latest stories

Govt Suspends Restrictions On Importing Goods

by Staff Reporter | 23 October 2018 | 50 Views

Mnangagwa appoints Civil Service Commission

by Staff Reporter | 23 October 2018 | 50 Views

The day Chamisa wanted to overthrow the Government

by Elijah Chihota | 23 October 2018 | 48 Views

How then did Mthuli Ncube hire such a shady character?

by Staff reporter | 23 October 2018 | 42 Views

WATCH: Lumumba explains why he got fired - Live

by Staff Reporter | 23 October 2018 | 78 Views

Mthuli Ncube's 2% tax still illegal

by Veritas | 23 October 2018 | 37 Views

Chamisa now willing to engage Mnangagwa

by Staff reporter | 23 October 2018 | 203 Views

'Soldiers fired randomly on August 1'

by Staff reporter | 23 October 2018 | 126 Views

Zimbabwe to cut company registration period to within 6 hours

by Staff reporter | 23 October 2018 | 111 Views

Chamisa statement on the prevailing economic, political and humanitarian situation

by Adv. Nelson Chamisa MDC President | 23 October 2018 | 163 Views

Cops scramble for cooking oil

by Simbarashe Sithole | 23 October 2018 | 130 Views

Mnangagwa flies out to Zambia

by Staff reporter | 23 October 2018 | 117 Views

Chigowe denies refs favour Dembare

by Staff reporter | 23 October 2018 | 80 Views

Emergency recovery measures to stop Zimbabwe economic free-fall

by Dr Tapiwa Mashakada | 23 October 2018 | 144 Views

Chamisa demands 2% tax refunds

by Staff reporter | 23 October 2018 | 150 Views

Zanu-PF chefs fail to pay workers

by Staff reporter | 23 October 2018 | 117 Views

Chamisa's youths to avenge vendor's death

by Staff reporter | 23 October 2018 | 120 Views

Zimbabwe motorists sleep in fuel queues

by Staff reporter | 23 October 2018 | 83 Views

Police pounce on Kadoma Forex dealers

by Stephen Jakes | 23 October 2018 | 138 Views

Dogs maul boy at Beitbridge border post - WhatsApp update

by Concerned Citizen | 23 October 2018 | 103 Views

Indosakusa leaves injiva in stitches

by Future Moyo aka Jamelah | 23 October 2018 | 83 Views

Kombis spend more time in queues these days

by Stephen Jakes | 23 October 2018 | 86 Views

How to find a safe and reliable online casino

by Staff Reporter | 23 October 2018 | 89 Views

Learning Factory: studying History and modern technology in Zimbabwe

by Brian Maregedze | 23 October 2018 | 79 Views

Mugabe's son-in-law appears in court, gets US$30 bail

by Staff Reporter | 23 October 2018 | 136 Views

NSSA reviews retirement grants

by Staff reporter | 23 October 2018 | 107 Views

Zimbabwe teachers to boycott Zanu-PF businesses

by Staff reporter | 23 October 2018 | 89 Views

Mthuli Ncube on a trajectory of vendettas?

by The Banker | 23 October 2018 | 339 Views

Chiyangwa demands respect he doesn't deserve

by Staff reporter | 23 October 2018 | 190 Views

Mnangagwa's Politburo, Central Committee to meet

by Staff reporter | 23 October 2018 | 219 Views

Mines Permanent Secretary in 'baptism of fire'

by Staff reporter | 23 October 2018 | 143 Views

Bid to block Mthuli Ncube's 2% tax hits brick wall

by Staff reporter | 23 October 2018 | 136 Views

Operation Restore Legacy hits RBZ

by Staff reporter | 23 October 2018 | 197 Views

Acie Lumumba fired?

by Staff reporter | 23 October 2018 | 236 Views

Vandalism, theft cost Zesa $20million

by Staff reporter | 23 October 2018 | 101 Views