Q: What was the motive behind the introduction of the two percent tax regime?
A: It’s only one of the measures, there will be many more. The motivation is basically the diagnosis of the problem in the first place. Let me start off with the external issues, which is that, we have a problem externally.
What is the problem? The problem is that we cannot access credit lines easily, or banks cannot access credit lines. And where is that problem coming from?
It’s coming from the issue around our arrears. The fact that we haven’t settled the arrears for the World Bank, the African Development Bank and the other creditors and we are behind, that is a problem.
The first step. People didn’t realise that I had gone to Bali to present the plan, that’s is what I did, which is a transitional stabilisation and there is overwhelming support for it.
The next step is then to pay off the African Development Bank and we will be doing that in due course and then settle the payment to the World Bank, those two banks, pari pasu, they need to be treated equitably, so we have to clear both at the same time and in doing so, we will seek assistance from our foreign partners, some of the bilaterals give us lines of credit.
And then we move to phase three, which is the Paris Club negotiations.
After we pay off the IMF and the AFDB and the World Bank, then we can start engaging the Paris Club seriously and then have some kind of debt restructuring, which could be a Highly Indebted Poor Countries (HIPC) type of solution or quasi-HIPC like option, so that is an external issue.
Q: Following the introduction of the tax regime, there were price increases. Can we attribute the increases to this tax increase?
A: But it’s not because of the two percent. Two percent is two cents in a dollar, how does that double the price of anything? Just think through that. It cannot be two percent, so it’s something else.
What it is really is the impact of the FCA (foreign currency accounts) introduction, which caused the impression in the market that we have two types of currencies, a domestic currency and a foreign currency.
Then if it’s a domestic currency, then what’s its value? And then we get this parallel market rate shoot up to 1:6-7 and until we said no, people listen, this is too much chaos, the conversion rate is 1:1 through a statement and that brought a little bit of sanity.
So, it was not the two percent, it can’t be. In fact, there is confusion, I really want to clarify that, it’s not the two percent, how can a two percent cause a more than 100 percent increase in prices, what’s the maths behind that? It’s not possible.
It’s a perception about value, so it’s an exchange rate issue, that’s what it is and when we said its 1:1, it brought sanity to the market.
We did not reverse the two percent, so how then did the parallel market move without me reversing the two percent?
I am just over-dwelling on the point so that people know that it is not the two percent and I want to correct this out there that this is not the case.
Q: Then the new policy on Foreign Currency Accounts (FCAs) and RTGS?
A: I will answer your question precisely. Let me explain why we introduced the FCA accounts. Again, what problem are we trying to solve? The problem is like this, the US dollars are by-passing the financial sector.
There is a lot of US dollars out there.
All of you have US dollars, so we want you to start trusting the banking system, this is what we call the partial opening of the capital account.
So allowing you, whether you are an exporter or you have free funds, to keep your money in the bank so that you can have access to it when you need that. I think that’s progress.
But of course, when we introduce that policy, we would like to see a little bit of order, not chaos, so that is why we are guaranteeing this conversion of 1:1, which means that the commitment is still in US dollars.
Actually, that is the answer that is the thing with this 1:1 that I have said we are guaranteeing value, 1:1 in terms of conversion, that then guarantees the US dollar value as far as we are concerned.
But people do other things out there in the so-called parallel market, I have no control over that and it’s not our market as government, we have no control over that.
But what we have control over is what we have guaranteed, which is a fixed exchange rate in a multi-currency regime and that 1:1 conversion is what we have guaranteed and we are also doing that to preserve value, to honour our promise of US denominative salary and a little bit of order as we introduce these FCA accounts. It will be difficult to do it in a chaotic situation.
Q: There are Western sanctions. What are their impact on your quest for economic revival?
A: There is the issue about Zidera (Zimbabwe Democracy and Economic Recovery Act) by the US, which in my view is that really as Zimbabweans and government, let’s embrace its principles in the sense that if it’s about opening up democratic space, which is what also this is about, that should be a natural progression for Zimbabwe anyway as we move to the club of upper-middle income countries by year 2030, it comes with that.
So the issue now is about the financial impact. Zidera has a financial impact, which then restricts US companies, banks from extending lines of credit to Zimbabwe.
But the principles of it are not an issue as far as I am concerned. These are the things we should be doing for ourselves, without anybody telling us, whether Posa (Public Order and Security Act), Aippa (Access to Information and Protection of Privacy Act), those are things that will eventually be reviewed and then the electoral reforms will also be dealt with and so forth, I am talking about the political issues, which link to the current environment.
Q: Do you think Zanu PF will accept to implement political reforms to open credit lines with the West?
A: Yes. I will say removal of Posa, changing it somehow, Aippa, electoral reforms and also the recommendations on the commission of inquiry on the August 1st violence incidence, those are the areas in terms of political reforms.
There is no issue with economic reforms in the sense that economic reforms will hinge on the arrears clearance path. But whatever we are doing here, they are very supportive.
Really the political issues are the issues, I don’t think government has issues, I mean the commission of inquiry is already at work, and these are people of stature who are running this.
They have their own reputations to protect, so it can’t be that the report they produce is below their reputation.
Q: What is the real problem in your view?
A: Internally, the problem is the state of government finances and I have been very open and transparent about the state of the government finances, which is we are living beyond our means, government expenditure far exceeds the government income, the revenues, so we have a double-digit deficit and I am desirous that we move into single digit.
So when you have that situation, where your budget deficit is high, then you are forced to issue treasury bills (TBs), that’s why you find that our treasury bills’ issuance is very high, domestic debt has been high and that then crowds out the private sector.
Dr Mthuli Ncube – Zimbabwe’s minster of Finance
Q: You have said you will curb the issuance of treasury bills to avoid unnecessary borrowing, how are you going to deal with quasi-fiscal policies such as Command Agriculture?
A: The agricultural programme so far has brought tremendous benefits for us. El Nino is coming, experts keep telling us that. Through Command Agriculture, we build up our strategic reserves.
Its 500 000 tonnes on the maize fund or cereals, surely that’s positive, because if you don’t, then you not going to have insurance against vagaries such as El Nino and then when you are in trouble, you end up importing and you have no foreign currency or it’s in short supply.
It’s important to note that we need to crowd-in the private sector in financing agriculture going forward, why private sector? Because that’s where the money is.
Q: You have also spoken about seeking to contain the budget deficit, how do you intend to achieve that?
A: So the solution to containing the budget deficit is two-fold, there is the revenue expansion side and then there is the cost containment of the expenditure controls.
It also happens that the Zimbabwe economy has become more informalised, more people are also on electronic platforms and we felt that the best way to get everyone to pay their taxes, to have an inclusive tax regime is to target electronic transactions and by the way, our rates are not even the highest on the continent.
There are some countries, I don’t want to name countries, but I know them, you can research, they take 10 percent, 12 percent and so forth, so two percent is not even the highest.
But also we have exemptions, not everyone is paying two percent, exemptions are on pensioners, for wages, for government on the remittances for taxation, otherwise we will have double taxation and then for transactions below $10.
Because corporates are creating jobs, we don’t want to squeeze them as well, we have put a cap, the maximum is $10 000, you have seen all those exemptions, so we think that it’s a well thought out taxation mechanism, it is inclusive enough.
I am sure someone is escaping or someone is feeling more pain than others, that is normal in any tax system, it’s never a perfect instrument.
On the cost containing side, we are going to look at reducing government waste in terms of vehicles. You can see that we have not authorised, rather we suspended the purchase of vehicles for ministers, members of Parliament, we will get there.
We are putting together a policy that we think is equitable, that will help us manage expenditure on something simple as vehicles, it’s about the wage bill in the budget, we will make some pronouncements, we negotiate internally on that.
Back to cost containment, wage bill, how we treat bonuses, we haven’t decided whether there will be bonuses or not, we haven’t decided, but it’s one of the things that is on the table, enforcing the retirement policy and so forth.
Those are typically the areas that we look at on cost containment.
All these things are negotiated, but it doesn’t mean there won’t be a reaction, there will always be a reaction for any policy that you will do and I understand that, we understand that, it’s called the politics of policy making.
Policy-making is always within political context and that political context could be general, it could be transitory, it could be just this week only and nothing next week, that’s normal.
Q: You have suggested taking the HIPC (Highly Indebted Poor Countries) route. Do you think it is the best way of solving the debt issue?
A: It’s on the table, it’s one of the options. The route is often negotiated with the creditors. We cannot impose it on the creditors, we owe the money, they don’t owe us money, so it’s on the table, its HIPC or HIPC-like or ad hoc, there are just so many options that’s what we will negotiate.
Q: But it appears Zanu PF is not keen on this route, what is your comment to that?
A: But we have no choice, we need to pay. We owe creditors money, we have to pay, we have no choice.
It’s not as if we have a choice, we have no choice. It’s a non-negotiable issue. If you owe someone money, you pay and if you don’t, there is a penalty and what’s the penalty to the economy, we can’t access credit lines.
Q: You spoke about the two-fold strategies of cutting expenditure and revenue collection. Why are you not just cutting expenditure as opposed to imposing taxes on the poor members of the public?
A: That’s what we are doing. In the budget there will be measures to cut government expenditure, absolutely.
Q: You also spoke about downsizing the civil service, how do you intend implementing that and when is that likely to start?
A: I can’t be precise on that, but it’s one of the measures naturally that will be on the table. I don’t like the words retrenchments, I prefer the word rightsizing, which also means that you also look at the skill mix and see if we can also incentivise skills to be retained, so it’s not just retrenchments, it’s also skills retention, which is also key, retaining the right skills, putting the right skills in the right places.
There is also those that are not required, that’s then what we call retrenchment. All these will be worked on, they will be written, negotiated, so we are really hard at work.
Q: There is also confusion over the $500 million Afrexim Bank facility to secure RTGS balances. Have you secured that money or it’s still under negotiation?
A: We are tying up some loose ends. It has been agreed by the board of Afreximbank. What people are just talking about are just signing contracts? But remember the FCA accounts are kicking in 1st of November, so we are not there yet in terms of time, but we have that commitment, we have the money virtually in the bank, that’s not an issue, we have that guarantee and I thank Afreximbank for the support that they have given us and they continue to do more.
There are other facilities we are negotiating for going further, some of those facilities will go towards again guaranteeing this transition, this monetary policy transition that we are going through as well as supporting forex supply for basic commodities.
Q: There are concerns that you have deliberately misled people on the correct inflation rate in Zimbabwe, what is the correct position?
A: Yes, I have seen this research from a gentleman called Steven Hanke, who is a superb academic. You can calculate the inflation rate with different methodologies.
He is using a different methodology on Zimbabwe. In a country, you should use what you consider to be an appropriate basket of goods to calculate your inflation, that’s what we do, we have always done that.
Of course over time, you revise your basket to reflect more the consumption pattern.
You can imagine if you take now, what you consume now, you consume more data now and you stay more on the phone than you did 30 years ago, so your consumption basket has also changed.
So these alternative calculations are based on different methodologies, so I don’t want to say they are wrong or right, they are using a different methodology, but you must make sure that the methodology serves a purpose.
The purpose of our methodology to reflect how expensive it is for the average family to survive in terms of consumption, it’s about the basket of living, that’s what it is, not just some number, it reflects the actual prices of a typical basket of goods basket of goods for a household family.
But for me the message that inflation is high or rising, I accept that message regardless of methodology, because even using our own calculations, we have seen an uptick of inflation. To me, that says inflation is a danger, that’s the message and I welcome that message.
Q: There is also a court challenge to your two percent tax, what do you say about that?
A: I am not aware of the court application. It’s legal, my position is that it is legal and I have not seen this court application.
Q: What is your growth projection?
A: We had a figure of 6, 3 percent for this year, and this is a revision up because we have seen more activity coming through. Our GDP has been re-based.
Our GDP figure in terms of what we are reporting as of two weeks ago was ballpark $18 billion, but now our official figure is about ballpark $25 billion.
So our economy is now bigger than we thought, it’s actually 40 percent bigger than we thought, so we have re-based it all the way back to 2016.
And this work for re-basing didn’t start when I arrived, they have been working on it for two years, that’s how long it takes.
You work on it for two years, you re-base.
In fact, the rule now around the world is that you must re-base every five years, so the last re-basing was in 2013 and now we are in 2018, so it just coincided with my arrival.
So anyone out there saying I work with a magic mind, it’s not true. I am saying that because, now because of the re-basing, it may tamper our growth focus, because even that 6, 3 growth forecast was based on the old numbers.
For me, I have to use these new numbers, because that’s what we need for the budget, you can’t use all the numbers for the budget.
Q: There are also claims that bigwigs are the ones fuelling the black market, what is your comment to that?
A: I don’t know whether it’s bigwig or small wig. All I can say is that if some of this behaviour is deemed to be illicit, money laundering.
We have strong anti-money laundering laws and the law should take its course. So, I don’t have any information on who is doing it, so the law should take its course.
Q: Besides all what you said, what are some of the policies that you are going to put in place in your quest to improve the country’s economy?
A: Privatisation. I am pushing hard on privatisation, so that the privatisable entities are privatised, I think we have about 11 that are categorised as due for privatisation.
The parastatals themselves need it, they are clamouring for it, because they want partners, they want capital.
We as government want efficient enterprise, so that I stop issuing treasury bills to support them, because we are doing that at the moment.
So this is a win-win for everyone. I am also insisting that every privatisation must make an effort to list on the Zimbabwe Stock Exchange, if it’s not already listed.
That’s important for deepening capital markets and growing the stock of companies listed on the Exchange.
Q: In terms of your plan, when are we likely to have our own currency?
A: That is a marathon, it’s not a sprint. We are being careful.
I said the first order of business was to partially open the capital account through the FCAs, but also make sure that there is order as we do so in terms of preservation of value.
That’s why we are guaranteeing 1:1 conversion and after that, we will be building reserves including gold reserves, building credit lines, at the same time trying to clear our arrears, then we can move faster if we do.
So all of that is building the base for an eventual full introduction of the currency, or whatever, but I have no timetable as yet, but I have got triggers, triggers being we need at least six months import cover in terms of foreign reserves and gold reserves, that’s usually a comfortable position to be in at least six months of import cover and a strong war chest of credit lines as well to go with it.
Q: Some ministers are staying in hotels when the public is being asked to tighten their belts, isn’t this hypocrisy of some sort?
A: Ministers, especially when they are new, they go through transition phases like buying houses, living in a government house, that’s just a transition phase.
Q: What are your final remarks?
A: We are open for business, certainly that’s how we are introducing this one-stop shop to make sure that it’s easy for foreigners to get in here, open businesses, register quickly and we can learn from other countries in Africa, the best countries in doing business in the world are actually African, without mentioning them.
We are serious about this land compensation issue for farmers, so we are keen to move on with that.
For industry, I would like to see the creation of venture capital funds to support industry.
Then on the mining front, also, I would like to see the creation of a venture fund for the gold sector especially, why?
I need it for building gold reserves for the central bank and for a start, it’s also an important sector, also it is one sector we are beginning to see these small to
medium enterprises operating.
It’s also supporting a lot of Zimbabweans.
Investing in infrastructure is key and here we are promoting public private partnerships, but also we are aware that government has capacity itself.
We have very good contractors locally, they must be given an opportunity and partner with foreign investors in doing so.
Naturally, our preference is we build our own operating transfer type of arrangement. Daily News.