MTHULI AN OVERRATED MINISTER. NO Solutions to Economic Crisis.
BY DR MASIMBA MAVAZA
Zimbabwe has experienced the worst economic dip since independence.
Given recent economic problems, what are the possible solutions?
The current downturn affects all major economies. Problems in Europe are feeding lower growth in US and vice versa. Some developing economies (China and India) are doing well, but they don’t have the same spending power and will to boost Zimbabwe’s ailing economy.
The unbalanced nature of growth in the economy, combined to cause a rise in commodity prices at the same time as economic stagnation in the West adds more grief to zimbabwe. Certainly this contributed to lower real wage and held back consumer spending. As well as the impact on disposable income, the cost push inflation (rising food / petrol prices) contributed to a general economic malaise – you can almost hear each Zimbabwean saying we’ve never had it so bad’.
Zimbabwe is now in a double dip recession where politics alone cannot sort the problems.
A double dip recession refers to a second period of negative growth (fall in output) that many economies are now facing and many have closed down.
Zimbabwe needed to avoid a technical recession (with very low growth) but with spare capacity and in the aftermath of a recession, very weak growth will have all the signs of an actual recession. (i.e. higher unemployment, decline in living standards. It is a very wrong time to be a Zimbabwean now.
But Zimbabwe is the only company we can call ours in the whole world. We therefore need to come together regardless our political divides. Zimbabwe now needs people to pull together.
Reasons why Zimbabwe is in this situation.
There is a lot of sacred cows within those in power. The efforts of president Munangagwa are being pulled down by corruption in the economic sector.
In the boom years, banks made an increasing number of loans with little regard to ability to repay. Many white farmers had loans which were tied to the farms. Banks found ways to increase the number of mortgage loans through strategies such as interest only mortgages, 100% mortgages and lending to people with credit histories which are ignored because of their influence in the country. This senior man’s syndrome pulled the liquidity to dry. Zimbabwe is the only country in the world which gives only Thirty dollars per day. This seriously slows down growth and plunges monetary system to become a joke. The result is that more farmers who have lost farms in the land distribution are at risk of mortgage defaults. It is this rise in mortgage defaults that led to bank losses and reduced their willingness to lend and cleaning the banks dry money availability becomes a dream.
Credit Crunch. banks lost billions through Loan defaults. They either did this directly or indirectly through the whole complicated network of credit default swaps. The financial system has never fully recovered – bad loans and loss of confidence. To that end the new dispensation inherited a time bomb which is now bursting into calamities and difficulties. The nation has now been brought to their knees with no hope in sight. Only a miracle will save Zimbabwe.
Balance Sheet Recession. The great recession of 2008, was not due to a temporary period of high interest rates or deflationary fiscal policy (
The last recession was because of fundamental imbalances in the banking sector. This is much more difficult to recover from. For example, interest rates were cut but low interest rates weren’t enough to encourage strong lending; it remains an example of a liquidity trap. Banks are concentrating on improving their balance sheets, and even now, there is a greater reluctance to lend, and banks are being more cautious. Only those who had influence got loans and failed to pay. Only those who are no longer protected by the authorities are being sued for the loans. Most still in power have refused or simply failed to pay or service the loans.
For Zimbabwe the economy could be helped if there was strong and decisive leadership in the economic sector. The fundamental thing is the government need to stop emphasizing the need for austerity and hard times. They are currently trying their best to talk us into a recession. It is not just a fiscal crisis, the real problem is the prospect of a second recession there are fundamental problems like Lack of Economic growth High Unemployment Long-term structural deficits Lack of Confidence in finance and consumer sector. These are just a few.
However there is hope only if the Number One priority is to Target Economic growth and reduce unemployment. At the very least, economic growth needs to be close to long run trend rate. it actually needs to be higher to catch up with lost spare capacity. Strong growth will help boost tax revenues and reduce unemployment. It is only in this climate you can successfully reduce the deficit.
There is supply-side unemployment, especially in Our youth. We have seen prolonged structural unemployment in past decades. But, the fundamental cause is lack of aggregate demand.
Zimbabwe should make a point of not cutting spending in this current economic climate. Governments should be bold and say the best way to reduce Debt / GDP ratios – is to increase GDP and this is what we are going to do.
Governments have to stop focusing on the negative and the necessity for austerity and hard times. If they want to turn around consumer and business confidence, they should convince the country their aim is to boost growth and reduce unemployment. This is the thing that will really encourage stock markets and bond markets.National debt – has been reduced significantly during the period of economic growth enabled the economy to pay off debt. Minister Mthuli Ncube is making the mistake of trying to solve long term structural deficits, by sacrificing short term growth. In the name of long term structural change, governments is deflating the economy at a time when they should be doing the opposite.
Mthuli should be setting out plans to reduce the long term deficit, but this should not be involving short term cuts in spending on important capital investment. These long term policies. are appropriate for incentives, efficiency and equality. The minister might raise tax on petrol, and tax on those high income earners who have benefitted from recent dip in the economy.
These kind of policies are sustainable and actually, make a big difference to long term budget situation. If you sell off assets or stop current capital investment projects, it is a very limited benefit to the long term budget. The government should come up with plans to improve long term budget situation over next 20 years, markets would be willing to lend for short-term economic recovery.
The minister is dazed by a wrong belief that making people suffer changes the economy.
It should be known that people have suffered a lot and so not need this suffering.
Zimbabweans do not deserve this situation.
There must be a clear option to this plan. The minister is overrated and must be guided by the party.
Those who are not voted for are the ones who disturb the flow of life in the masses.