An economic policy is a course of action that is intended to influence or control the behavior of the economy. Economic policies are typically implemented and administered by the government. Examples of economic policies include decisions made about government spending and taxation, about the redistribution of income from rich to poor, and about the supply of money.
Economic policy reform in Zimbabwe has not resulted in improved socio–economic welfare for the populace. Consequently, economic decline resulted in widespread political discontent and disaffection during the late President Robert Mugabe's regime and has continued into the first 4 years in power of President Emmerson Mnangagwa. It is imperative to highlight the fact that good economic policies can play a pivotal role in cleansing an economy. Economic policies may fail due to a number of possible reasons e.g lack of funding, improper implementation strategy and lack of credibility amongst others. Most economic polices in Zimbabwe look like statements of wishful thinking because at face value they sound good and yet in reality they are characterized by serious lack of a feasible and practical implementation strategy.
Types of Economic Policy
Almost every aspect of government has an important economic component. A few examples of the kinds of economic policies that exist include:
- Macroeconomic stabilization policy, which attempts to keep the money supply growing at a rate that does not result in excessive inflation, and attempts to smooth out the business cycle.
- Trade policy, which refers to tariffs, trade agreements and the international institutions that govern them.
- Policies designed to create economic growth
- Policies related to development economics
- Policies dealing with the redistribution of income, property and/or wealth
- As well as: regulatory policy, anti-trust policy, industrial policy and technology-based economic development policy
Macroeconomic stabilization policy
Stabilization policy attempts to stimulate an economy out of recession or constrain the money supply to prevent excessive inflation.
Fiscal Policy, often tied to Keynesian economics, uses government spending and taxes to guide the economy.
- Fiscal stance: The size of the deficit or surplus
- Tax policy: The taxes used to collect government income.
- Government spending on just about any area of government
Monetary Policy controls the value of currency by lowering the supply of money to control inflation and raising it to stimulate economic growth. It is concerned with the amount of money in circulation (Reserve Money) and, consequently, interest rates and inflation (Zimbabwe Inflation Rates).
- Interest rates, if set by the Government
- Income policies and price controls that aim at imposing non-monetary controls on inflation
- Reserve Requirement which affect the money multiplier
Two ways of assessing economic policies
The effectiveness of economic policies can be assessed in one of two ways, known as positive and normative economics:
Positive economics attempts to describe how the economy and economic policies work without resorting to value judgments about which results are best. The distinguishing feature of positive economic hypotheses is that they can be tested and either confirmed or rejected. For example, the hypothesis that “an increase in the supply of money leads to an increase in prices” belongs to the realm of positive economics because it can be tested by examining the data on the supply of money and the level of prices.
Normative economics involves the use of value judgments to assess the performance of the economy and economic policies. Consequently, normative economic hypotheses cannot be tested. For example, the hypothesis that “the inflation rate is too high” belongs to the realm of normative economics because it is based on a value judgment and therefore cannot be tested, confirmed, or refuted. Not surprisingly, most of the disagreements among economists concern normative economic hypotheses.
Goals of economic policy
The goals of economic policy consist of value judgments about what economic policy should strive to achieve and therefore fall under the heading of normative economics. While there is much disagreement about the appropriate goals of economic policy, several appear to have wide, although not universal, acceptance. These widely accepted goals include:
- Economic growth: Economic growth means that the incomes of all consumers and firms (after accounting for inflation) are increasing over time.
- Full employment: The goal of full employment is that every member of the labor force who wants to work is able to find work.
- Price stability: The goal of price stability is to prevent increases in the general price level known as inflation, as well as decreases in the general price level known as deflation.
Economic Policies in Zimbabwe
In its 36 years of existence as an independent state since 1980, Zimbabwe has come up with several economic blueprints aimed at promoting sustainable economic growth and poverty alleviation. Early years of independence were marked by policies aimed at redressing colonial era imbalances by assimilating previously marginalized people into the mainstream economy. These people did not have the means and capacity to participate in the economic programmes and government had to assist them through providing free education and health, job creation and land resettlement. Later on the thrust was to wean off the citizens from too much dependence on government for survival with the economy moving from being tightly controlled to liberalization.
There are a lot of success stories from the different economic policies that the government came up with but in general they have not been very successful because of poor implementation and excessive political expediency by national leaders. Current economic problems cannot be solved by more blueprints but require policy makers to change their paradigms towards prudent economic management and eradicate social ills such as corruption while reengaging the world as opposed to narrowly focusing on one side under the Look East Policy.
Aspects of post-Mugabe economic diplomacy
In the last two decades of the late President Robert Mugabe’s rule, Zimbabwe experienced unprecedented economic decline and international isolation. In his inauguration speech on 24 November 2017, Mugabe’s successor President Emmerson Mnangagwa declared that ‘Zimbabwe is open for business’ and promised that through engagement and re-engagement policy, Zimbabwe would rejoin the international community of nations to ensure sustainable economic growth. Economists van Bergeijk, de Groot and Yakop focused on inward and outward economic diplomacy. What are the domestic and foreign aspects of Zimbabwe’s new economic diplomacy? Most evidence from available sources suggests that this new economic diplomacy has not yielded much – because of the government’s legitimacy crisis and evident authoritarianism, its failure to implement political and economic reforms, and continued negative perceptions of Zimbabwe in the international community – making calls for reform all the more critical to the economic outlook of the country.
Economic and Social Policy Reforms in Zimbabwe
Countries have been adopting, what can be termed new policies that runs for a specified period with set targets and desired achievements. Economic policies are usually in line with politics period, that is, they are linked to the political term. Economic policy debate revolves around issues like transparency, accountability, governance, consensus and participation. Long ago, these concepts were not at the center of the reflections, but they have always applied. Countries that have developed successfully over sustained periods of time are those that have achieved transparency, accountability, governance, consensus and participation, or at the least, have prevented shortcomings in these areas from gaining the upper hand.
Economic Structural Adjustment Programme (ESAP)
The policy was been adopted for 1990-1995 period. When the new government came to power after independence in 1980, there was need to reduce Zimbabwe's deep socioeconomic disparities. Hence the government invested heavily in health and education. Such action led to an increase in public expenditures, which for most of the 1980s made up 45 percent of the Gross Domestic Product (GDP). Social indicators improved, particularly in health and education, but per capita income stagnated because large government spending crowded out private investment and fueled inflation, while shortages of imported goods constrained investment and growth. Population grew faster than job creation, widening the disparities in income levels. In 1991, the government proposed a policy agenda that formed the basis for the Economic and Structural Adjustment Program.
Zimbabwe Programme for Economic and Social Transformation (ZIMPREST)
ESAP was succeeded by the reform programme, popularly known as Zimbabwe Programme for Economic and Social Transformation (ZIMPREST) whose main objective was the creation of a stable macro-economic environment which allows increased savings and investment in order to achieve higher growth and improvement in the standard of living for all Zimbabwe. The policy was scheduled for the period 1996-2000. The main aim of ZIMPREST was to correct the mistakes of ESAP, which it later failed to do.
Millennium Economic Recovery Programme (MERP)
In August 2001, the Millennium Economic Recovery Programme (MERP) was launched to address the continuing decline in economic performance through price stabilization, exchange rate stabilization and protection of the vulnerable groups. After the Millennium Economic Recovery Programme has been implemented, there was no upturn in the economic indicators, the main reason being loss of macroeconomic balance due to the size of the budget.
The National, Economic Revival (NERP)
NERP was launched in February 2003 to provide, inter alia, humanitarian support in the face of a long term drought. A centerpiece of the economic and social programme was the land reform and redistribution programme (Fast Track Land Reform Programme) which aimed to redress the skewed distribution of land and provide farms for landless peasants. The success of this policy is debatable, since there is no significant agricultural output reaped so far from the distributed land.
Short Term Emergency Recovery Programme (STERP)
STERP was an emergency short term stabilisation programme, whose key goals were to stabilise the macro and micro-economy, recover the levels of savings, investment and growth, and lay the basis of a more transformative mid-term to long term economic programme that was supposed to turn Zimbabwe into a progressive developmental State. STERP was part of implementation of the Global Political Agreement and sought to address the key issues of economic stabilisation and national healing, whilst at the same time laying the foundation of a more comprehensive and developmentalist economic framework to succeed the same.
The key priority areas of STERP were; Political and Governance Issues (constitution and the constitution making processes, media and media reforms, legislations reforms) intended at strengthening governance and accountability, promoting governance and rule of law and promoting equality and fairness, including gender equality.
Zimbabwe Agenda For Sustainable Socio-Economic Transformation (ZimAsset)
By the time of this analysis the implementation of the document is still in debate, however as the only policy in place for 2013-2018, there is hope that its modification will exist to guide economic activity for the said period. The Republic president has said in a speech:
"In pursuit of a new trajectory of accelerated economic growth and wealth creation, my Government has formulated a new plan known as the Zimbabwe Agenda for Socio-Economic Transformation (ZIMASET): October 2013-December 2018. ZIMASET was crafted to achieve sustainable development and social equity anchored on indigenisation, empowerment and employment creation which will be largely propelled by the judicious exploitation of the country’s abundant natural and human resources."
The Transitional Stabilisation Programme (TSP) was a programme proposed and implemented by Zimbabwe's Finance and Economic Development Minister, Mthuli Ncube following his appointment in August 2018. The programme was launched on 5 October 2018 and was set to run up to December 2020. The programme was designed to:
- stabilise the macro-economy, and the financial sector;
- introduce necessary policy and institutional reforms to translate to a private sector-led economy;
- address infrastructure gaps,
- launch quick-wins to stimulate growth.
National Development Strategy (NDS) is a five-year national strategic programme launched by the Government of Zimbabwe to bolster infrastructure projects from 2021-2025 deemed crucial for the attainment of an upper middle income status by 2030.
Economic Policies Not to be repeated
Quasi policies (Quasi-fiscal Activities) are never encouraged in developing world like Zimbabwe. While the idea might be right, and funds are not enough some policies are not to be adopted due to the nature of damage they will bring. Zimbabwean government adopted a policy known as Basic Commodity Supply Side intervention (BACCOSSI), which saw some companies receiving aid, while others failed to get such. The economic impact was that the level of competitiveness among companies changed, while those that received aid prospered and the remainder had to suffer. The economic lesson is that government should correctly calculate the fund requirements of each policy, then make sure that it is well communicated to all players and wherever possible distribution should be even. Otherwise some companies will fail to compete and hence shutdown, which will later have linkages of harmful factors in the economy.