Zimbabwe Mid Term Fiscal Policy step in right direction

Posted on July 23, 2010 | Category: Politics; Business, Sport

 

www.zimguardian.com

Last week on 14 July Finance Minister Biti presented the 2010 mid-term fiscal policy statement under the theme Refocusing, Regeneration and Revival. The budgetary statement and policy was well crafted as it seeks to consolidate the Economic stabilization which has been attained under Minister Biti’s direction. Specific challenges have been identified and practical solutions proposed such as the Diamond Mining Act which is long overdue.

The policy document states “Apart from the National Vision, it was recognized that the rule of law, restoration of basic freedoms and democracy were a necessary precondition for sustained economic recovery. Therefore, the implementation of agreed positions in the Global Political Agreement around issues of the rule of law, the Constitution, security of persons and prevention of violence, freedom of expression and communication, among other things was imperative.” It is clear that Zimbabwe can not hope for full economic recovery when farm invasions continue and human rights abuse allegations persist. There is need for sustained political stability which will attract investors.

On Diamond Mining and other minerals the absence of value addition and beneficiation of Zimbabwe minerals continues to perpetuate a situation whereby Zimbabwe remains an export of raw materials. The statement rightly advocates for further value addition to Zimbabwe’s minerals. This will lead to greater value creation and more jobs created whilst develop9ing local industrial capacity example is the Diamond fiasco. Zimbabwe should be focusing on cutting, polishing and finishing diamond products instead of just pushing to export rough diamonds. Whilst in the short run this may seem wise in the long run its best that Zimbabwe imports all necessary equipment and skills to fully develop its diamond industry within the confines of the Kimberly Process. Instead of earning an estimated US$ 1,7 billion from rough diamonds Zimbabwe could earn 3 times that much by exporting polished, cut and finished diamond products.
Currently Zimbabwe has a non existant Monetary Policy due to the abolition of the Zimbabwe Dollar. Cash Economy and lack of credit and liquidity has become the order of the day. This has hindered economic recovery due to under capitalization of businesses. Whilst the Minister expects the multi-currency regime to remain for the next 2 years it may be good policy to start preparations for launching a local Zimbabwe dollar pegged to the rand in anticipation of joining the South African Customs Union (SACU) and the proposed regional monetary union. This also demands pro-active approach to maintain inflation at single digit levels.
There are several areas where the Ministry of Finance has been highly effective in creating a conducive business environment.
The attainment of substantial stabilization of the economy in 2009, with huge gains
particularly in the following areas:
- Inflation reduction and hyper inflation elimination;
- Improved capacity utilization in productive sectors of agriculture, mining and manufacturing, from below 10%
- to around 30% to 50%;
- Removal of price distortions in both foreign exchange and
goods markets;

- Resuscitation of financial sector services;
- Some improvement in public service delivery, particularly in the areas of water and sanitation, transport, health and education sectors;
- Improvement in social protection programmes for
vulnerable groups;
- Overall business confidence building;
- Policy consistency and predictability on key policy fundamentals;
- The enactment of key legislation dealing with credibility and accountability over the use and management of public resources; and
- Re-engagement with the international community.
The Minister rightly sticks to the policy of “what we gather is what we eat” as he famously said. Zimbabwe should try to live within its means and avoid falling into debt traps or donor fund addiction. The Country’s Economic vision must be centered on creating self sufficiency and developing local industries driven by the service sector and value added mineral exports. Donors are unlikely to come any time soon therefore Zimbabwe should use available resources wisely whilst strengthening revenue generating capacity through measures which will expand the tax base.
Whilst there is clear intention to help those vulnerable members of society it must be made clear this is best done through enhanced wealth creation by allowing those with ability and capacity to form businesses to go ahead and create jobs. The idea of re-distributing old wealth will not solve the problem and will be counter productive. The creation on new businesses and attracting new investment is the key to improved standards of living.
A key concept of Accountability over Public Resources was well articulated and how this is important in transforming the country’s Economy. Various policy measures especially on pre-payments were made. This is critical especially in light of the current allegations that a well known new farmer was advanced US$ 12.5 million for Tobacco purchasing by the Reserve Bank but somehow $3.5million of these funds are not properly accounted for. This calls for proper new systems and standards on accountability of state funds and resources.

According to Minister Biti “A major threat to the effective implementation of our Budget programmes is the remnants of a culture lack of accountability and a culture of entitlement, impunity and indifference over public resources.” This is an important observation which must be highlighted as it is one of the key reasons why Zimbabwe’s Economy was ruined at an alarming pace.

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