Professor Mthuli Ncube

By Prof Mthuli Ncube

The process of creating a stable macroeconomic environment for building confidence in the Zimbabwe economy requires first of all, a clear budgetary framework in the Ministry of Finance and the targeting and tracking of key macroeconomic variables. Second, it requires a process of fiscal consolidation and medium-term approach like a 3-year horizon to budgeting. Third, it requires institutional coordination between the fiscal side, and the monetary side (Reserve Bank of Zimbabwe). Finally, external engagements and visibility with main creditors, global IFIs, global capital markets, G20 participation, and creating an international economic Advisory Council, for example. Institutional coordination is necessary. On this point, a macroeconomics coordination Committee needs to be created between Ministry of Finance, Reserve Bank, in the main, and also include Ministry of Industry, Trade, Labour, and ZimStat (for data) – the economic cluster. This nexus of issues above is key to building a stable macroeconomic environment.

Of course, the Ministry of Finance performs many other functions such as regulation, among others, which I am not addressing in this piece.

On the budgetary framework and performance, this should be based on credibility and integrity meaning that the budget and rations that accompany it should be realistic and is implemented as intended. The budgetary process should also adhere to principles of comprehensiveness and transparency, meaning that the budget and the fiscal risk oversight are comprehensive and fiscal and budget information is accessible, as far as possible, to the public. Some of the risks are in fact off-balance-sheet risks for the fiscal side. The budgetary framework should also be anchored on policy-based budgeting, where the budget is prepared with due regard to government policy and service delivery objectives. The overall vision of a creating an economy with growth that is strong, sustained and inclusive would be the bedrock of policy formulation. This also underpins a “value for money” objective, where policy achievements are weighed against the financial resources deployed, seeking to achieve efficiency and high impact. There should also be predictability and control in budget execution. This implies implementing the budget in an orderly and predictable manner. It also implies the appropriate exercise of control and stewardship in the use of public funds. The budgetary framework also, entails effective accounting, recording and reporting. Therefore adequate records and information are to be produced, maintained and disseminated to meet decision-making control, management and reporting purposes. Finally, the budgetary framework should be seen to be subjected to external scrutiny by the relevant legislative committees, the public, and credit rating agencies, and key creditors. Key IFIs are important, especially if Zimbabwe needs external budget support from bilateral donors, IFIs and others.

To support the budgetary framework and performance, there is need to invest in systems that are ICT enabled. Here, Estonia is a good example in e-government that is worth emulating. Block-chain technology promises to be a good platform for developing systems with integrity and transparency and ought to be considered. Block-chain technology is a “trust machine”. Rwanda has begun delivering health medicines and blood samples by drone in remote areas as part of the architecture of effective service delivery. Given the wide mobile telephone coverage in Zimbabwe, drone systems working off the mobile telecommunication system could be developed for accessing remote rural areas. ZimStat should start collecting data from Zimbabweans by mobile phone instead of physical visits to households. I did that successfully in Tunisia and DRC when I was Vice president and Chief Economist of the Africa Development Bank. In short, technology is a friend of effective government systems and service delivery.

Turning to the second issue, the broader issue of a medium-term (3 year) budget cycle and fiscal consolidation process, it is important to take a 3 year horizon or so, in the budgetary process and performance. This will allow for gradual approach to fiscal consolidation towards targets, giving the whole process a roadmap that is transparent. For example, the Ministry of Finance would set a target for the budget deficit for Zimbabwe of say 3 percent and below, by year 3, and then work towards achieving that. This is followed by clear expenditure control measures, especially recurrent expenditure, and revenue collection targets that meet the budget deficit targets, and commensurate borrowing targets from the market. By setting such fiscal boundaries, that enables monetary policy run by the central bank to have clearer and fewer fiscal constraints which is key to the pursuit of its objective function of inflation control and targeting, and payment system stability. Monetary policy can begin to work again and a Monetary Policy Committee (MPC) is introduced, without the shackles of fiscal indiscipline. Good examples exist in South Africa and Botswana, for purposes of peer-learning.

In the table below, there is some key macroeconomic data and forecasts that should always remain in the line-of-sight in the 3-budgetary framework.

Zimbabwe Key Macroeconomic Data (2016-2019)

Variable 2016 2017 2018* 2019*
Real GDP growth (%) 0.7 3.0 2.4 4.2
Per capita GDP Growth (%) -1.9 0.4 -0.2 1.5
Consumer prices (%) -0.9 3.5 7.9 4.9
Total Investment (% of GDP) 15.6 19.6 18.8 18.2
Gross national Savings( % of GDP) 19.1 24.8 23.6 23.1
Fiscal Balance (% of GDP) -8.4 -9.6 -3.1 -1.9
Government Debt(% of GDP) 69.8 78.4 75.2 72.6
Broad Money growth (%) 17.5 44.4 8.1 10.8
External Current Account (% of GDP) -3.4 -2.6 -2.6 -2.4
Net Foreign Direct Investment (% of GDP) 2.1 1.8 1.9 1.8
External Debt (% of GDP) 42.1 38.9 36.2 33.8
Reserves (Import Cover in Months) 0.8 0.5 0.5 0.5

Source: IMF, World Bank, AfDB, ZimStat; *forecasts

On the third item of macroeconomic coordination, there is need for fiscal and monetary policy coordination, in order to make sure that monetary policy is not over-relied upon to a point where it attempts to become a substitute for fiscal policy. Indeed, the central bank should not be involved in quasi-fiscal activities. Fiscal policy should be disciplined in order to enable monetary policy in the form of inflation targeting, in the main, to be equally disciplined, and be effective. Fiscal indiscipline contributes to inflation and pushes up domestic borrowing. Rising debt means even higher debt in the future in an environment of high interest rates and low growth. High interest rates, exacerbated by a weak banking sector and prescribed assets investment environment, then squeeze out private sector borrowing. Banks merely prefer to hold treasury bills with high yield and lend less to the private sector. The yield curve in the fixed income market, would then be downwards slopping, and stifle the growth of a proper bond market with medium and long-term maturity instruments – all leading to falling domestic investment and lower growth. 

Institutionally, there should be a Macroeconomics Coordination Committee (MCC) created, comprising the Ministry of Finance, Reserve Bank of Zimbabwe, ZimStat for data quality, Ministry of Industry, Trade, labour, and planning dept. The committee would meet once a month but certainly once a quarter, and officials would continue to interact in between. A macroeconomic model that facilitates rigorous scenario analysis and input should be created. Each of the parties should be able to access the model and input data. In addition, a Dynamic Stochastic General Equilibrium Model (DSGE) that combines the micro economy (consumers and industry) and macroeconomic (fiscal and monetary) should be built, and simulate the direction of the economy under various scenarios, over a 15 year period or so. This allows one to include the informal sector. I have built a DSGE model for Ghana, Kenya, Nigeria, Zambia, Sierra Leone, and trained policy makers from 40 countries across Africa from both Central banks and Ministries of Finance. On the broader macroeconomic model, it can be controlled through a specially designed intranet platform. I personally have implemented a macroeconomic model and intranet, in this way in a few countries in Africa. This way, economic policy-makers in Zimbabwe can engage with officials from institutions like the IMF and World Bank and others, at the same level, if not higher.

Finally, external engagements with partners is key, especially with the IMF, World Bank, Africa Development Bank, Chinese Import and export bank, Afreximbank, PTA8TDB bank, KfW, capital markets, global banking institutions, being invited to G20 meetings of Finance Ministers as observers and guests. Indeed, road shows to visit bilateral creditors are important as well.

Zimbabwe should also create an Zimbabwe International Economic Advisory Council (ZIEAC), under the Ministry of Finance and working with Foreign Affairs, so as to build a constituency externally, and help drive foreign investment into Zimbabwe. Members of the ZIEAC would be senior economists with global influence and stature, and senior business leaders. The members should be drawn from various continents in Europe, US, Asia, Africa, including Zimbabwe. The new government of Imran Khan in Pakistan has just appointed its Advisory Committee. The target is no more than 15 people, who will meet every quarter (physically or virtually) with the Zimbabwe officials, to brainstorm and give their advice on how to improve effectiveness globally and domestically for building investor confidence. Needless to say, the conditions for the ease of doing business should be improved significantly to make Zimbabwe competitive against its peers like Botswana, Zambia and Rwanda, for example.

All this helps to create an understanding of what Zimbabwe is aiming to achieve on the macroeconomic front, in creating macroeconomic stability, and in building investor confidence, going forward.  

*Professor Mthuli Ncube is an economics, financial and public policy expert of global influence, with experience in the financial sector (private sector), academia, and public policy. He is the former Vice President and Chief Economist of the Africa Development Bank. He is Professor at Oxford University, UK, and Board Member of the Official Monetary and Financial Institutions Forum (OMFIF) in London, and also board member of the Global Development Network based in New Delhi, India and Washington. He advises various governments in Africa on economic policy and international financial institutions. He has authored 14 books in economics and finance, and holds a PhD in Economics (Mathematical finance) from Cambridge University, UK.