2019 will go down in history as an unforgettable year owing to the infamous austerity measures (which of course started late 2018). Ever since finance minister Mthuli Ncube assumed office he has enacted a wide range of economic reforms. One of the most topical ones has been the Intermediate Money Transfer Tax (IMTT), popularly known as the 2% tax. Though the finance minister has been insistent that the reforms are necessary and actually working the truth is they have made life torrid for most Zimbabweans. It really has been an eventful year indeed; no time in Zimbabwean history has there been a year where statutory instruments were crafted as much as this year. However, the economy still continues to free fall.
Somehow Reforms Are Still Needed
The finance minister has, of course, rolled out numerous economic reforms but the situation has only gotten worse. The meteoric rise of inflation is unrelenting, the cost of doing business has booted most people out of business and unemployment still remains sky-high. Logic would presuppose that more economic reforms will be further introduced by the finance minister. This is obviously premised on the fact that the present circumstances are a result of his prior reforms. Interestingly, the finance minister has indicated something quite the opposite of that presupposition.
No Major Reforms Next Year
Minister Mthuli Ncube has pointed out that next year will not be characterised by any major economic reforms. He made the remarks sometime last week at a Zimbabwe Chamber of Commerce (ZNCC) meeting and his exact words were:
“We expect a better economy next year. We are walking the talk. I think we have achieved a miracle without external support. Let me say I will not announce major economic reforms in 2020. The President is here listening to me. Maybe, he will crack the whip on me.”
However, judging by past events his remarks might not necessarily hold water. I do not want to really critique his words much but I will let you do so. Bottom line is those remarks do not sound quite sincere and concrete; after all, there are questionable aspects in them. It is characteristic of him to go back on remarks he would have made earlier. In fact, many of you even recall incidents when he and the central bank governor gave conflicting accounts of the same issues. So as much as him saying there will not be any major economic reforms next year was unexpected it is not something to bank on totally. Especially when you look at the 2020 budget statement he recently presented you cannot help but be cynical about the absence of major economic reforms next year.
The Dilemma Treasury Finds Itself In
Most people out there always discuss how the government has literally failed to tame the local economy. The truth of the matter is that actually is the brutal truth because they are in a strait betwixt two. The current state of the economy is broadly characterised by two metrics namely, rising inflation and rising unemployment. The working approaches in addressing those two are at variance with each other. That is where the dilemma emanates from thus leading to a scenario where treasury seems confused in its way of doing things.
Unemployment typically spikes when economic activity plummets. To address that you have to come up with policies that are focused on expansionary initiatives. On the contrary, in order to address rising inflation, you must enact policies that are focused on contraction (rather than expansion). Unfortunately, the Zimbabwean economy is grappling with both rising unemployment and rising inflation at once. When you closely look at the finance minister’s policies, he was bent on curtailing rising inflation. That has done nothing to address rising unemployment plus rising inflation still rages on regardless of it having been one of his key focuses.
The Central Bank’s Sentiments
The Central bank feels there is a need for rapid and drastic policy measures to address the current economic mess. What makes that a tall order though is that fiscal and monetary policies are somewhat impotent when both recession and hyperinflation are at play. Due to increasing costs of production business are forced to downscale or stop their operations. In order to stay afloat, they are also forced to raise their prices in order to recoup money lost to high costs. Ultimately, it becomes a perpetual cycle such as what is happening currently. The central bank also feels that inflation might possibly go down to less than 5% when we get past June next year. The central bank will limit reserve money growth in 2020 to curtail inflation.
Most economists project things might actually get worse next year. They broadly agree on the fact that austerity measures have dismally failed to rectify the ailing economy. Some are of the notion that the austerity measures have been mainly borne out of political pressure rather than the ethos of economics. All in all, the majority of Zimbabweans still continue to struggle and the outlook does not look good at all.