Financial Programming as a Policy Management Tool

The objective of this paper is to examine the various economic policies Zimbabwe can adopt, in a consistency framework, to achieve and maintain macro-economic stability and hence contribute to the goal of rapid and sustained growth. The paper also alludes to the pivotal role political commitment plays in the success of economic reforms.

 The Zimbabwean economy has progressively declined since 1999, with real GDP having been falling since then. Inflation reached 11.2 million percent by the end of June 2008. Living standards have also drastically declined.  The major source of the economic meltdown has been, in large part, the application of inappropriate economic policies, examples of which include: expansionary monetary and fiscal policies and increased government intervention in economic activity. Zimbabwe’s isolation by the international community, due to the perceived breakdown in the rule of law and bad governance has also contributed to the economic crisis.   

There is need for the government of Zimbabwe to urgently adopt a stabilisation program to restore macro-economic stability and stir the economy towards a sustainable growth path. The disinflation program will be premised upon the restoration of confidence in the economy through the normalisation of relations with the international community, especially the International Monetary Fund. International financial assistance for balance of payment and budget support is crucial for the success of the program.

The stabilisation program should be complemented by a set of structural reforms, including among others, moving away from price controls and regulations to price monitoring and surveillance to increase business viability, doing away with quasi-fiscal operations and gradual removal of exchange control regulations that encourage transfer pricing and parallel market activity. Monetary policy will need to be decisively tightened to bring inflation down and build policy credibility.

While the recent liberalization of the foreign exchange market is commendable it should be complemented by a tight monetary policy stance.  Evidence on the ground shows a continuous depreciation of the local currency, against a background of increasing money supply growth.

It is also important for the country to institutionalise financial programming as a policy management tool. In this respect, there is need for close cooperation between the institutions responsible for the formulation and implementation of economic policy. Close cooperation in policy formulation and implementation will ensure that fiscal developments do not derail monetary growth objectives.  The longer the authorities wait to adopt a stabilisation program, the difficult it is going to be to re-orient the economy back to a sustainable growth path.