EIU says too much talk from Harare

The Economist Intelligence Unit (EIU) observed last week that Zimbabwe

does not lack medium-term economic policy documents what was in

short supply however are detailed and credible projections as shown by

last months release of two rival documents by two economic

ministries.

Finance Minister Tendai Biti published a medium-term policy framework,

some 11 months after the original Short-Term Economic Recovery

Programme (STERP) was formulated.

STERP II, which covers the period between 2010 and12, is a much longer

and more detailed document but, according to EIU, the blueprint has

disappointed many businesspeople and donors partly because of its

generally non-technical approach.

The EIU said further discrediting the governments turnaround

programme was the fact that the Ministry of Economic Planning had

earlier in December published a rival document, the Medium-Term

Economic Programme (MTEP) containing different figures and

assumptions.

STERP II says it contains the macroeconomic policy instruments that

will “anchor the rolling budget for the years 2010-12” while the MTEP

will deal with “broad developmental and growth-oriented policies.

The STERP estimates are also striking in a number of respects.

They are far more modest and substantially more realistic than the

Economic Planning ministrys draft economic plan, which assumes GDP

(Gross Domestic Product) growth of 12.5 percent in 2010 and averaging

15 percent annually over the period to 2015, said EIU.

The GDP growth rates and implied investment growth rates are however

incompatible with sectoral figures.

For instance, it is difficult to see how mining output can grow by 40

percent in a year in which electricity production is predicted to rise

by a mere three percent.

More broadly, STERP II seeks to put a price tag on the critical

financial investment needed to restore the economy to 1997 levels,

emerging with a grand total of US$45 billion.

Of this amount, some US$20 to US$30 billion would be needed over the

three years to 2012.

Bitis blueprint assumes that between US$4 billion and US$6 billion

would be raised through the domestic financial sector while government

revenues from the national budget could contribute a further US$5 to

US7 billion.

Public-private partnerships are expected to raise between US$1 and

US$2 billion while the government would look abroad for international

support for another US$7.5 to US$10 billion.

STERP II concedes that international support would depend on the

authorities devising a strategy to deal with the country’s US$3.8

billion of external debt arrears.

The Harare administration therefore hopes to raise US$25 billion to

finance its ambitious investment programme over the next three years.

On any count, however, this looks very ambitious for a country with a

GDP of less than US$5 billion. The implication is that investment must

average 140 percent of GDP over the three-year period, the think-tank

said.

Militating against such a high investment rate are the fact that

domestic savings are currently negligible at present and the

balance-of-payments deficit averages more than one-quarter of GDP.

There is scepticism, therefore, about the projections contained in the

programme, not least because much will depend on a sustained

improvement in the political environment–of which there is little

sign at present.