Zvikomborero Sibanda
The Russia-Ukraine war and its primary ripple effects on international trade and cooperation is a major source of volatility and uncertainty particularly for developing economies like Zimbabwe.
This war poses catastrophic long-term impacts on global economic activity. It is already compounding the problems that were initially worsened by the COVID-19 pandemic such as public debt. Many emerging and developing market economies are grappling with unprecedented debt levels with data showing many at risk of defaulting. As their debt ratios breach 100percent of the gross national product (GDP), debt servicing costs are now gobbling the larger chunk of government budgets thus crowding-out critical public services, safety nets, private sector support, and infrastructure development.
With a clear uncertain future for the global economy, it is looking gloomy for Zimbabwe, a country that heavily relies on both foreign-produced goods and primary commodities which are too susceptible to severe global fluctuations. This shows that the domestic economy is inadequately insulated from global economic fluctuations. Since 2019, the nation has struggled to contain excessive currency fragility and is experiencing a sustained increase in general prices that continues to plunge the majority of the population into poverty. For instance, official statistics show the price of basics mounting by 268.8% in the last 12 months through October 2022. The World Bank also estimates that 40% of Zimbabwe’s population is living in extreme poverty. Independent economic commentators attribute all this to government officials’ economic and financial mismanagement driven by massive policy inconsistencies, fiscal indiscipline, illicit financial flows (IFFs), corruption, greed, and impunity among others. The obtaining dire socio-economic situation is likely to worsen as the nation gears for a general election in less than 7 months from now.
Generally, in a developing nation set-up, elections pose greater economic risks. The election cycles are largely characterized by political violence, police brutality, unwarranted arrests of activists, human & property rights abuses, and a compromised judiciary. Also, the election risk emanates from the ‘politics of public spending’ as many empirical studies like the one by Ebeke and Olcer (2013) have proved that during election years, government consumption increases leading to higher fiscal deficits. A granular analysis of government policy direction in recent months signals elevated fiscal spending for 2023 due to rising political pressures. For instance, the government has announced plans to increase household agricultural support for the 2022/23 season under Pfumvudza Scheme to 3.5 million from 2.3 million who participated in the previous season. This ambitious plan comes at a time the cost of fertilizers and some critical farm inputs have burgeoned significantly, being largely driven by the Russia-Ukraine war and its ripple effects on global food and energy prices.
A question for objective inquiry is, whether this doubling of 2023 Pfumvudza Scheme beneficiaries was coincidental or it was just a deliberate move by those in the corridors of power to appease the ruling party’s rural strongholds. These state-funded farm inputs are reportedly being distributed on a partisan basis. But, in an ideal set-up, productive government subsidies should be allocated and distributed to all intended beneficiaries transparently to curb abuse and waste of taxpayers’ hard-earned dollars. For the record, I am not against the State’s provision of social safety nets especially given the obtaining context of chronic inflation. While the government’s yearly unwavering support to vulnerable societal groups like rural smallholder farmers is highly commendable, it remains to be seen if the Treasury will be able to bear the ballooning spending burden sustainably, that is to say, be able to achieve optimal spending levels by all government line ministries, departments, and agencies without jeopardizing the stability of its financial position.
Nevertheless, based on historical trends, there is a strong basis to question the sustainability of increased public spending aimed at shoring up incumbents’ electoral chances. As such, the already overtaxed consumers and businesses should brace for increased and regressive taxes in the upcoming fiscal year as it will be inevitable for Treasury to find ways to match revenue collections with elevated spending needs. The adverse impacts of high taxes on the general well-being of the economy and citizens, therefore, cannot be overemphasized. Typically, high taxes have repercussions on saving culture, business investment, domestic production, labour’s ability to work, consumer incomes, and poverty prevalence, among other effects.
More so, the nation is witnessing regressive legislation being proposed likely because of the upcoming general elections. These include inter alia the pending Patriotic Bill, the Health Service Amendment Bill, and the Private Voluntary Organizations (PVO) Amendment Bill. A simple analysis of the contents of the PVO Bill shows that the main motive of the Bill is to silence civil society organizations (CSOs) despite CSOs being very crucial when the common objective is to respect the tenets of a thriving democracy. For example, the PVO Bill will give too much power to the Executive to control and interfere with the work of non-governmental organizations (NGOs), it increases the surveillance and monitoring of these NGOs, and it potentially criminalizes NGO work and human rights defending.
If passed, the regressive Bills being proposed would leave the poor and vulnerable groups who rely the most on support from NGOs worse off. It is well documented, for instance, that Zimbabwe’s public health care sector receives hundreds of millions of US dollars in donor support annually to reduce malnutrition in children and fight diseases like malaria, tuberculosis, and sexually transmitted infections (STIs) among other health initiatives. Apart from targeting NGO work, the mounting number of episodes of political violence being witnessed across the country like the bloody violence that occurred in Matobo last month is alarming. Political disputes which degenerate into full-scale violence and civil unrest scare away capital thus constraining business investment -both foreign and domestic. In short, election seasons in developing nations like Zimbabwe are characterized by an increased investment risk premium. The need for the suppliers of loanable funds and entrepreneurs to trade/invest cautiously to avoid excessive losses in 2023 is expected to exert adverse pass-through effects on economic activity.
It is, therefore, my view that in order not to derail the moderation of currency depreciation and price inflation witnessed in recent months, authorities should prudently navigate the upcoming election season. There are increasing calls to ensure that the Treasury cool down election-linked spending pressure in the months ahead otherwise the private sector would be crowded-out by excessive domestic public borrowing. Thus, the nation will remain trapped in a vicious circle of macroeconomic volatility. Also, I submit that lawmakers should not rush to pass archaic legislation that scares away investment and isolates Zimbabwe from the international community. Progressive legislation that leaves no one and no place behind is critical for Zimbabwe if she is to achieve robust and sustained economic growth in line with the aspirations of Vision 2030.
Zvikomborero Sibanda is an economic analyst and an astute researcher. He writes in his personal capacity. He can be contacted via email:
br**********@gm***.com
Twitter: @bravon96
