MDC Secretary of Economic Affairs Responds to Gono’s Zeronomics
If Zimbabweans needed fresh evidence that the Zanu PF regime does not understand how modern economies work, does not have a clue about what to do to fix Zimbabwe’s staggering problems and is totally impotent when it comes to addressing these issues, the policy statement by the Minister of Finance and the Governor of the Reserve Bank provides ample such evidence.
The Minister tinkers while Zimbabwe burns and the Governor steps through a magic mirror into a fantasy world that is entirely of his own imagination.
The MDC has stated on many previous occasions that the collapse of the Zimbabwe economy can only be halted and reversed if we undertake the following with immediate effect: -
1. We agree to setting up an interim administration to oversee the return of the country to the rule of law and democratic sovereignty.
2. We collectively negotiate a new people driven constitution to replace the existing one and hold free and fair elections under international supervision to restore legitimacy to the Zimbabwean government.
Until we are in a position to resume inflows of finance and support from the international community and adopt more orthodox fiscal and financial policies, there can be no halting of the steady decline currently taking place in all sectors of the economy.
As far as the details of the two statements are concerned the MDC comments as follows: -
GDP Decline.
Since 1997, the Gross Domestic Product of Zimbabwe has declined progressively and continuously. It did so in 2005 and we expect the economy to shrink by a further 7 per cent in the current year.
The Fiscal Deficit
The IMF brought to the countries notice the massive deficit in the national fiscus in 2005 of an estimated 63 per cent. This must be compared to the maximum sustainable budget deficit of 3 to 5 per cent observed by most countries. The Minister of Finance has done nothing to address this issue except to be a little more honest than he was in 2005. The accumulated domestic debt of government at Z$43 trillion must be added to the estimate of parastatal debt of Z$73 trillion – giving rise to an astonishing figure for total government domestic debt of Z$116 trillion.
This confirms Zimbabwe’s status as a deeply indebted country and with our external debt now standing at almost US$4 billion with over US$2,2 billion in arrears Zimbabwe simply has no chance of either servicing such debt or redeeming it for many decades to come.
Of grave concern is the fact that the Minister has made no attempt to redress this issue or to halt the explosive growth in debt. This will inevitably lead to inflationary pressures being maintained in Zimbabwe and present inflation rates can only accelerate still further until more robust and substantial measures are taken.
The Absurd Monetary Situation.
The decision by the Reserve Bank to slash three digits off the national currency and to replace all existing currency in 21 days is a welcome, if stop gap, measure. The MDC hopes that the necessary administrative action to support such a radical step has been carried out in advance of this announcement or the long suffering Zimbabwean population is going to be faced to yet more chaos and confusion.
Tax Measures
The decision to raise the tax free limit from Z$7 million to Z$20 million a month is a belated attempt to redress the impact of inflation on individual incomes. MDC has argued that the tax threshold should be adjusted on a regular basis and in line with the assessed poverty datum line. Under the Ministers new tax regime, people earning significantly less than the PDL (Z$68 million a month) will pay tax at the maximum rate. This is simply another example of the depths to which Zimbabwe has sunk in the past 26 years.
Corruption.
The main source of corruption and theft in Zimbabwe remains the State administered system of under valuing exports in local currency and in the wholesale theft and expropriation of private assets. Mr. Gono is right to identify corruption as a major problem and one of the key areas that require the attention of the State. However, he fails to recognise that the Reserve Bank, an institution that he manages and directs, is in fact the main source of corruption in the country.
Inflation.
It is clear to all except those in privileged enclaves, that inflation continues to accelerate and that there is absolutely no way that this can be halted and reversed under the very conditions being created by these chaotic and piecemeal reforms. The massive reduction in interest rates will further devalue our capital stock and the massive expansion in money supply dictated by the unmanageable budget deficit, will only foster inflation and decay.
Conclusion
Inflation, shrinking economic output and declining foreign earnings are strangling Zimbabwe’s economy. None of the measures announced by the Minister of Finance or the Governor of the Reserve Bank will halt that process. The key to progress remains political rather than economic and monetary tinkering and time is not on our side.
Dr. F. Hove
Secretary for Economic Affairs
Technorati Tags: Zimbabwe, Zimbabwe Economics, Inflation, Economics, MDC
The Minister tinkers while Zimbabwe burns and the Governor steps through a magic mirror into a fantasy world that is entirely of his own imagination.
The MDC has stated on many previous occasions that the collapse of the Zimbabwe economy can only be halted and reversed if we undertake the following with immediate effect: -
1. We agree to setting up an interim administration to oversee the return of the country to the rule of law and democratic sovereignty.
2. We collectively negotiate a new people driven constitution to replace the existing one and hold free and fair elections under international supervision to restore legitimacy to the Zimbabwean government.
Until we are in a position to resume inflows of finance and support from the international community and adopt more orthodox fiscal and financial policies, there can be no halting of the steady decline currently taking place in all sectors of the economy.
As far as the details of the two statements are concerned the MDC comments as follows: -
GDP Decline.
Since 1997, the Gross Domestic Product of Zimbabwe has declined progressively and continuously. It did so in 2005 and we expect the economy to shrink by a further 7 per cent in the current year.
The Fiscal Deficit
The IMF brought to the countries notice the massive deficit in the national fiscus in 2005 of an estimated 63 per cent. This must be compared to the maximum sustainable budget deficit of 3 to 5 per cent observed by most countries. The Minister of Finance has done nothing to address this issue except to be a little more honest than he was in 2005. The accumulated domestic debt of government at Z$43 trillion must be added to the estimate of parastatal debt of Z$73 trillion – giving rise to an astonishing figure for total government domestic debt of Z$116 trillion.
This confirms Zimbabwe’s status as a deeply indebted country and with our external debt now standing at almost US$4 billion with over US$2,2 billion in arrears Zimbabwe simply has no chance of either servicing such debt or redeeming it for many decades to come.
Of grave concern is the fact that the Minister has made no attempt to redress this issue or to halt the explosive growth in debt. This will inevitably lead to inflationary pressures being maintained in Zimbabwe and present inflation rates can only accelerate still further until more robust and substantial measures are taken.
The Absurd Monetary Situation.
The decision by the Reserve Bank to slash three digits off the national currency and to replace all existing currency in 21 days is a welcome, if stop gap, measure. The MDC hopes that the necessary administrative action to support such a radical step has been carried out in advance of this announcement or the long suffering Zimbabwean population is going to be faced to yet more chaos and confusion.
Tax Measures
The decision to raise the tax free limit from Z$7 million to Z$20 million a month is a belated attempt to redress the impact of inflation on individual incomes. MDC has argued that the tax threshold should be adjusted on a regular basis and in line with the assessed poverty datum line. Under the Ministers new tax regime, people earning significantly less than the PDL (Z$68 million a month) will pay tax at the maximum rate. This is simply another example of the depths to which Zimbabwe has sunk in the past 26 years.
Corruption.
The main source of corruption and theft in Zimbabwe remains the State administered system of under valuing exports in local currency and in the wholesale theft and expropriation of private assets. Mr. Gono is right to identify corruption as a major problem and one of the key areas that require the attention of the State. However, he fails to recognise that the Reserve Bank, an institution that he manages and directs, is in fact the main source of corruption in the country.
Inflation.
It is clear to all except those in privileged enclaves, that inflation continues to accelerate and that there is absolutely no way that this can be halted and reversed under the very conditions being created by these chaotic and piecemeal reforms. The massive reduction in interest rates will further devalue our capital stock and the massive expansion in money supply dictated by the unmanageable budget deficit, will only foster inflation and decay.
Conclusion
Inflation, shrinking economic output and declining foreign earnings are strangling Zimbabwe’s economy. None of the measures announced by the Minister of Finance or the Governor of the Reserve Bank will halt that process. The key to progress remains political rather than economic and monetary tinkering and time is not on our side.
Dr. F. Hove
Secretary for Economic Affairs
Technorati Tags: Zimbabwe, Zimbabwe Economics, Inflation, Economics, MDC
