The Sunday News
Dr Bongani, Ngwenya
Preamble:
IT is surprising that economic basics cannot or do not work in Zimbabwe, when they are driving the economies of most countries in the world — rich and poor. Zimbabwe is among those that favour the “home grown” solutions at the expense of bookish economics.
Raising an economy’s growth potential for example, requires both stabilisation and structural policies that complement one another. Stabilisation policies, naturally lay the foundation for economic growth by helping lower inflation rate for example, in times of spiralling prices of goods and services — which may not be the case at the moment.
Successful implementation of structural policies is possible only after such macro-economic imbalances have been resolved.
Similarly though, structural policies enhance the effectiveness of many stabilisation measures — promoting competition (eg a structural policy), can lead to lower prices and, hence, lower inflation (the, ultimate goal of stabilisation policies).
Economic Basics:
It is natural that economics can get out of whack for a variety of reasons. Policymakers, in turn, have a number of ways at their disposal to try to fix the economy, depending on what is wrong. It is paramount to establish and understand what may be wrong or what may have gone wrong in the first place.
For example, when prices are rising too fast and consumers and businesses are buying at a rate that exceeds an economy’s underlying ability to produce goods and services — that is, overall demand is growing too fast — it goes without saying that policymakers would have to take steps to reduce demand.
Similarly, during economic downturns and deflation — experienced in our economy, ie when businesses and consumers close their wallets because of liquidity crunch — aggregate demand is shrinking — the Government should take steps to encourage the businesses and consumers to open their pocketbooks or substitute Government spending for diminished private spending.
Such Government actions are called demand management or stabilisation policies. Zimbabwe’s economic problems have long lasted than the excessive or inadequate demand, as a result of public policies or private practices that have impeded efficient and fair production of goods and services — that is, have affected the supply side of the economy.
Fixing such problems would naturally require changes to the fabric of the economy, ie structural policies. On the other hand, basic economic stabilisation policies become important in the short run, because it is easier to alter the various components of overall demand for a short time than it is to make a country’s resources more productive. Stabilisation policies would also include taxing and spending actions, ie fiscal policy and changes to interest rates and the money supply.
When longer-term, structural changes are required to improve aggregate supply, the Government must address specific impediments, such as weak external liquidity inflows, decline in prices of export commodities, product competitiveness challenges and capacity underutilisation. Low commodity prices for example have had a net negative impact in the Zimbabwe economy for several years now. The poor agricultural harvest as a result of drought in some years and falling capacity utilisation in the agricultural sector has also contributed to lowering export earnings from the sector. Neither have there been any offsetting of these losses in earnings from other exports, such as mining and production or manufacturing.
As a result of these impediments, the current account deficit has continued to expand unabated to unprecedented proportions of the country’s GDP.
The redress of these negatives may involve the core structure of the economy, such as how prices are set — there has been a serious price distortion in the economy since the adoption of the multi-currency regime, how public finances are conducted — fiscal expenditure, restructuring Government-owned enterprises — parastatals, financial sector regulation, restructuring labour market rules and regulations, revisiting the social safety net, and social institutions.
With support of the World Bank Group, International Monetary Fund and other development partners, Zimbabwe can make significant structural and economic reform that will contribute to sustained economic growth in the immediate, medium and long term.
Development challenges and impediments that include poverty and inequality, and the vulnerability of the economy to internal and external shocks, have affected the economy.
Zimbabwe used to be the bread basket of the Sadc region. Zimbabwe used to boast of meeting some Millennium Development Goals (MDG) targets, which included reduction in child mortality, near universal primary school enrolment and narrower gender gaps in education, when interventions and increased spending on health and education were paying dividends.
Its devolved health and free maternal health care in the past at all public health facilities improved the health care outcomes and developed a more equitable system that was at some point an envy of the Sadc region.
In conclusion, Zimbabwe has the potential to become one of southern Africa’s great success stories once again from its growing and youthful population, a potential dynamic private sector, a new constitution, and its pivotal role in the Sadc region.
Addressing challenges of poverty, inequality, governance, low investment and low company productivity to achieve rapid, sustained growth rates that will transform the lives of ordinary citizens, should be the major goal for the country’s economic turnaround and sustained development.
Dr Bongani Ngwenya is a Bulawayo- based economist and senior Lecturer at Solusi University’s Post Graduate School of Business. Feedback:[email protected]/[email protected]
