Strict measures needed to revitalise economy

Strict measures needed to revitalise economy

Zim industryZIMBABWE must take steps to address several economic growth-inhibiting factors, which have continued to militate against recovery, especially after 2011, when the economy slipped into another recession following significant growth at dollarisation in 2009, a leading advisory firm has said.The country’s Gross Domestic Product (GDP) growth averaged 10,1 percent following adoption of a hard currency economy and the ditching of the domestic currency in 2009, the same period political foes buried the hatchet and formed an inclusive government.
The development brought stability and dealt with the scourge of hyperinflation, which had ravaged the economy.
But instability has returned, with companies folding, and demand for goods and services declining due to an erosion of disposable incomes, leading to a slide in growth, which ended at 3,3 percent in 2013.
The recession has been triggered by declining commodity prices on the global markets, which have also begun affecting the mining and agricultural sectors significantly.
Economic trends in Zimbabwe are driven by developments in the two sectors, which have overtaken the manufacturing sector in terms of contribution to economic growth.
A report by IH Securities, titled Zimbabwe Equity Strategy 2015, says timeous policy interventions were now imperative in the liquidity starved market in order to reignite growth.
IH said key among the factors government should pursue is the restoration of the external position to bolster government’s capacity to service galloping debts, which are now estimated at about US$8 billion.
Debt servicing is expected to open frontiers to lines of credit that industries badly require.
“Government needs to accumulate international reserves and seek to mobilise international support for resolving the country’s external debt situation,” said IH in the report dispatched to clients recently.
“Policy clarity, transparency and key structural reforms must be made in order to enhance the business climate to attract FDI (Foreign Direct Investment), boost productivity and competitiveness, and build confidence,” the report said.
“Furthermore, there is a need to consolidate the fiscal position, eliminating the primary budget deficit by exercising strict fiscal discipline. The wage bill, which currently constitutes 80 percent of total expenditure, is unsustainable and continues to crowd out capital development projects, to which only eight percent of the budget is channelled,” IH said.
“FDI remains subdued; for the first ten months of 2014, the country received FDI amounting US$146,6 million, compared to US$311, 3 million during the same period in 2013. The currently depressed international commodity prices, coupled with the continued depreciation of the South African rand are also exerting further pressures on Zimbabwe’s external position, although we expect some relief to come from declining oil prices. On the upside, we have seen some progress in the creditor re-engagement process, attested by the token re-payments made in the year and successful implementation of the first Staff Monitored Programme with the IMF, which have resulted in normalising relations with key institutions. Improved cooperation with creditors and normalising international relations culminated in the lapse of Article 96 of the Cotonou Agreement on 1 November 2014,” said IH.
Last week, the Reserve Bank of Zimbabwe sought to restore normalcy on the pricing of goods and services, with the January 2015 Monetary Policy Statement calling for a wage freeze to free up funding to growth stimulating projects.
The central bank called for downward adjustment in prices across the economy, arguing that this would help increase demand while lowering pressure for wage and salary increases in the economy.
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