Zimbabwe crisis: Confidence is the missing link

Zimbabwe crisis: Confidence is the missing link

By Respect Gwenzi, HARARE, October 13 (The Source) – Predictions by renowned world economic bodies and the government point towards economic recovery in Zimbabwe at least over the next 3 years. Underlying this foreseen recovery is a projected sustained favourable rainfall pattern which is expected to buoy agriculture fortunes.

Moderate to strengthening regional economies are likewise projected to feed into this envisaged growth through enhanced regional trade, while recovering commodity prices are expected to redeem the waning economic growth. To support the projections, recent economic data released by relevant authorities shows that mineral exports have grown by over 25% in the 8 months period to August against the same period last year. September revenue figures by ZIMRA shows a 14.3% outperformance to target. In an October paper the IMF has since revised Zimbabwe’s growth projections upwards to 2.8% from an initial projection of 2%.
A favourable mineral earnings growth helps drive down the country’s external trade deficit which stands at a historic average of -$2.5 billion per year since 2009. A positive external trade position increases forex supply while at the same time spurring economic growth through increased gross domestic product.

Revenue collections by Zimra are a springboard upon which the economy’s growth is launched. Budgets are normally targeted against collections. Keynesian economics postulates that increased budgeted for expenditure results in firmer national income. A growth in the base (collections) will normally result in economic growth as measured by GDP.
Zimbabweans at every level have however refused to accept certain fallacies that are postulated from these projections. There are strong market and general sentiments that the economy is instead shrinking when adjusted for various developments such as monetary and production. These adjustments are sentiment driven.

The sentiments in the economy are such that there is no confidence in the system governing the country. At each turn economic agents are anticipating for the worst and this is driven by a lack of coherence and budgetary indiscipline on the part of the government among other issues, not social media. The prevalent market discount rates for RTGS and other forms of payments have effectively eroded constant GDP so is real income for all individuals. For example if Zimbabwe’s GDP was measured at $16 billion in 2016, that value today will be much lower at say $12 billion after discounting for market vagaries.
Of interest however is the causative of this erosion that has led to sharp discounts or premiums (depending on the angel one looks at) in publicly traded shares, TBs and other money market instruments. These discounts are reflective of expectations of a gloomier outlook as deduced from various perspectives.

Market players have closely been tracking government debt and money supply levels to determine the outlook while general economic participants have been watching the supply of bond notes to inform the outlook. All these aggregates have pointed upwards in turn spurring the propensity to discount. Government’s domestic debt has been partially financed through TB issuance in turn increasing local money supply in the economy which is barely backed by real money.
The government should adopt confidence building measures in order for the economy to realize its potential through growth. These confidence building measures should be premised on transparency, fiscal discipline and policy consistency among other measures.

It starts with streamlining of government operations, engaging and consulting on budgetary issues, allowing the public to review the implementation of budget and the adoption of consistent policy measures. A mere pick for a critical portfolio such as Finance should equally be targeted at stimulating populace and business confidence, through a good record, which is the missing link. The envisaged growth will therefore not be achieved in isolation, rather a lack of confidence will discount the growth and the net may turn out to be negative. – Respect Gwenzi is managing director and lead analyst at Equity Axis, a Harare-based research firm