Public Finance Management in the Development Matrix of the Global South

Table of Contents

1. Frontmatter

2. Chapter 1. Introduction

   Michael Takudzwa Pasara

   Abstract

   In the contemporary landscape of governance and development, economic and social policies intersect in ways that profoundly shape the well-being of nations and their citizens. Recent observations are reflecting that while the Global South countries are making an attempt to adopt economic and governance models of the Western democracies, there are several unique idiosyncrasies that must be acknowledged and analyzed within the context of Global South economics. For instance, the roles and lines between the executive leadership in political echelons, parliament, and supposedly independent key institutions, such as the judiciary and the parliament, remain blurred. This ultimately influences how legal frameworks and macroeconomic policies are crafted and implemented. This edited volume seeks to explore these intersections through a diverse set of chapters covering the role of parliament in economic governance; social inclusion; national budgets for education, health, and social protection; public debt; financial inclusion; macroeconomic policies; illicit financial flows (IFFs); and other related themes. Each of these areas plays a critical role in determining a country’s development trajectory, affecting everything from economic stability to social equity and the resilience of public institutions. At the heart of this volume is an inquiry into how these different elements interact within the broader framework of governance, economic management, and social policy. The various chapters critically examine the institutional, policy, and governance dimensions of economic decision-making, highlighting both opportunities and challenges in shaping inclusive and sustainable development. This book brings together contributions from scholars and practitioners across disciplines and provides a holistic view of the key financial, political, and social issues that underpin national and global economic systems.

3. Chapter 2. Legal Frameworks and Public Finance Management Processes in Zimbabwe: The Background

   Michael Takudzwa Pasara

   Abstract

   This chapter analyzes public finance management (PFM) systems and frameworks in Zimbabwe. It provides an overview of the legal frameworks, which guide public finance management in the country by analyzing various specific laws such as the 2013 Constitution (and amended parts, thereafter), the Public Finance Management Act (PFMA), the Public Debt Management Act, and the Public Procurement and Disposal of Public Assets Act, among others. The chapter also provides a brief overview of the role of parliament in the PFM systems and processes. This is then followed by an overview of the national budget process and the key participants at each stage during the national budget cycle. The chapter wraps up the discussion by discussing the role of key institutions in the national budget process.

4. Chapter 3. An Overview of the Key Institutions Involved in the Public Finance Management System in Zimbabwe in View of a Socially Inclusive Society

   Michael Takudzwa Pasara

   Abstract

   An effective understanding and analysis of the public finance management (PFM) system requires an understanding of its architecture and the related key institutions that drive specific mandates within the government or public sector. This chapter provides an overview of the key institutions in the PFM system in Zimbabwe and a critical analysis of how they can contribute to ensuring that there is social inclusion of all demographics and their intersectionality. Some of the key institutions include the Parliament of Zimbabwe (PoZ), the Ministry of Finance, the Office of the Auditor-General (OAG), and key government agencies, such as the Zimbabwe Revenue Authority (ZIMRA), Zimbabwe Anti Corruption Commission (ZACC), and Procurement Regulatory Authority of Zimbabwe (PRAZ), among others. These institutions have different but interrelated functions and mandates, such as policy formulation, implementation, accounting, tracking, monitoring and evaluation, and oversight. This chapter adds value by adding to the literature how these institutions are pivotal in ensuring a socially inclusive society.

5. Chapter 4. Digital Currency Adoption, Nonbank Financial Intermediation, and Financial Inclusion in the Global South

   Michael Takudzwa Pasara

   Abstract

   Globally, financial inclusion is recognized as a developmental tool. This chapter aims to investigate the adoption of digital currencies, nonbank financial intermediation, and financial inclusion in the Global South. An estimated 1.7 billion underbanked individuals and 2.3 billion financially excluded adults, as well as small- and medium-sized businesses, face connectivity challenges. This chapter explores the various theoretical and empirical developments in financial inclusion, including the case of cryptocurrencies, which have gained momentum in the past decade and a half, with associated risks and benefits. It concludes that the majority of the Global South population is still excluded, although mobile banking has accelerated the rate of inclusion. The chapter provides the case for and the critical role of financial institutions and public policy in facilitating financial inclusion and mitigating risks.

6. Chapter 5. Effects of Central Bank Foreign Exchange Market Interventions on Money Supply in Zimbabwe

   Michael Takudzwa Pasara, Jairos Chanetsa

   Abstract

   The study analyzed the effects of the foreign exchange (FX) market interventions by the central bank on the growth of money supply and whether the interventions are sterilized in Zimbabwe. The specific objectives included examining the effects of foreign exchange interventions (FXIs) on the growth of money supply in Zimbabwe, determining whether the interventions by the Reserve Bank of Zimbabwe (RBZ) were sterilized or not, and examining the effectiveness of the RBZ’s interventions on the foreign exchange market in Zimbabwe. The Autoregressive Distributed Lag (ARDL) approach was adopted using monthly time series data, after the official dollarization period (October 2018 to March 2022). The study observed a significantly negative relationship between money supply and parallel exchange rates due to monetary policy actions by the central bank. In the long run, the existence of a direct relationship between inflation rate (proxies by the consumer price index (CPI)) and the growth in money supply implies that any permanent increase in the money supply could eventually lead to a more than proportional increase in prices. The study also concluded that the RBZ interventions were unsterilized, given that the interventions, as represented by changes in net foreign assets (NFAs), had a positive relationship with money supply and that the actions by the RBZ have not been effective in ensuring exchange rate and inflation stability. The study recommended the RBZ to embark on contractionary monetary policies and consistent monetary policies, which will assist in minimizing the destabilization of the macroeconomic environment by lowering speculative behaviors and inflation expectations, among others.

7. Chapter 6. The Influence of Monetary Policy Shocks on Exchange Rate Fluctuations: Devising a Model for Enhancing Currency Stability

   Michael Takudzwa Pasara, Gondani Hlangani

   Abstract

   This study aimed to investigate the impact of monetary policy shocks on exchange rates and develop a model for enhancing currency stability in Zimbabwe. Utilising secondary monthly time series data from January 2020 to June 2023, the study employed Granger causality tests and the Vector Error Correction Model (VECM) to analyse the relationships between interest rates, money supply, and exchange rates. Results revealed a significant Granger causality effect from money supply to exchange rates, emphasising the crucial role of broad money in shaping short-term dynamics. However, the impact of interest rate changes on exchange rates was found to be limited in the short term. The study constructed a robust VECM framework, grounded in lag structures and feedback loops, providing practical insights for policymakers. The model highlighted the responsiveness of exchange rates to changes in broad money and interest rates. Recommendations include having a balanced approach to managing broad money supply, prioritising stable and attractive interest rates for sustained economic growth, and instituting the error correction mechanism (ECM) for prompt adjustments to deviations from long-term equilibrium. Policymakers are advised to view the model as adaptive, requiring continuous refinement to remain relevant and effective in navigating the complex economic landscape.

8. Chapter 7. Framework for Harnessing Value from International Remittances to Improve Household Welfare

   Michael Takudzwa Pasara, James Dambaza

   Abstract

   The primary goal of the research was to evaluate the influence of international remittances on households welfare-based results obtained from primary data collected from remittance recipients. To attain that goal, the study examined theoretical and empirical evidence to ascertain prior expectations on the association between international remittances and household welfare. The study adapted and utilized a logistic regression technique to analyze primary cross-sectional data collected from survey respondents. Findings from the research indicated that households that receive international remittances have better household welfare relative to those that do not. The study also established that remittances have macroeconomic benefits, which include gains in foreign currency reserves, financial development, provision of capital to small businesses, and increasing demand for domestic equity securities on the Zimbabwe Stock Market. There is a need for the Reserve Bank of Zimbabwe to extend its financial literacy training to remittance recipients. This helps recipients make better use of remittances, such as contributing to national savings and starting small businesses to enhance their economic welfare.

9. Chapter 8. The Role of Agricultural Output and Sustainability in the Economic Growth Matrix in Zimbabwe

   Mercy Chenjerai, Michael Takudzwa Pasara

   Abstract

   Agriculture is the mainstay of the Zimbabwean economy, contributing significantly to employment, export earnings, raw materials, and food security. The performance of this sector is critical in the growth of other sectors and the growth of the whole economy. The main objective of this study was to empirically examine the contribution of the agriculture output to economic growth in Zimbabwe from 1980 to 2018 using the ordinary least squares (OLS) model. The results indicate that the agricultural value added, industrial value added, service value added, and government expenditure (on agriculture) value added were all significant in influencing the national output under the study period. The Johansen co-integration test was also employed, and it shows the existence of a positive long-run relationship between agriculture and economic growth. The findings from this study suggest that agriculture output contributes to economic growth, although its contribution has been decreasing over time. The study, therefore, recommends that for Zimbabwe to attain the highest economic growth, the government should invest in interventions that promote the growth of agriculture output, such as the generation and diffusion of new technologies through research and development, which will help in discovering new methods of increasing agriculture output, and increase economic growth.

10. Chapter 9. Testing Wagner’s Law on Public Expenditure and Economic Growth in Zimbabwe (1990–2020)

    Michael Takudzwa Pasara

    Abstract

    Time series analysis has gained popularity in the investigation of the relationship between public spending and gross domestic product (GDP) growth, with Granger’s causality test technique being the most popular. The study objective was to analyze the impact of government expenditure on economic growth in Zimbabwe for the period 1990 to 2020 by testing Wagner’s law on public expenditure. The study used the Ordinary Least Squares (OLS) method. Results indicate that capital expenditure (CE) was positive and highly significant at 1%; social sector expenditure (SSE) was negative and weakly significant at the 10% level, while inflation (INF) was negative and highly significant at the 1% level. The study results revealed that capital expenditure has a positive impact on economic growth, while inflation and social sector expenditure have a negative growth; hence it is growth retarding. However, government consumption expenditure (GCE) was found to be insignificant in the study period. In this study’s empirical literature review, it was discovered that Wagner’s law had stronger support than Keynesian theory. For economic growth to occur in Zimbabwe, the government should encourage much capital investment so as to increase output, hence an increase in the nation’s income, thus leading to increased government expenditure in the future. Investment in capital leads to an increase in the country’s GDP.

11. Chapter 10. Public Debt and Social Inclusion in Africa: Theoretical and Empirical Perspectives

    Bismark Mutizwa, Michael Takudzwa Pasara

    Abstract

    This chapter acknowledges the importance of public debt in national growth and development. This is because the majority of developed nations have utilized public debt to finance their major infrastructure projects, investment, and transformational programs that have fostered social inclusion. While debt has proven to be a blessing to the first world by promoting national growth and development, this has not been the case for Africa. The majority of African states are in debt distress, and their debt has become a burden and curse to national development. This is because of a cocktail of dynamics that intersect to militate against optimum utilization of public finances. These factors include but are not limited to weak and conflicting legal, regulatory, and institutional frameworks established to manage public debt; opaque debt contraction and utilization; corruption; economies of affection; tender-preneurship; and state capture. A scenario that has undermined social inclusion and social protection systems. Therefore, it is this chapter’s ambition to bring to light the effects of public debt in undermining social inclusion through an exposé of the theoretical and empirical perspective of public debt and social inclusion in Africa.

12. Chapter 11. Public Debt Crisis: Status and Implications in the SADC Region

    Sombo Muzata, Bismark Mutizwa

    Abstract

    This chapter examines the public debt crisis in the Southern African Development Community (SADC) region. It is generally accepted that a country may need to use public debt to fund its infrastructure projects and support economic growth at some point in its development. When contracted and used for the right reasons, public debt can provide much-needed relief and support and boost economic activities. With international financial markets opening and developing countries gaining access, most SADC countries have utilized the opportunity to get debt to their advantage, and to some—detriment. Instead of adhering to some limit, more than 50% of the SADC countries have borrowed excessively and found themselves in debt distress. This has led to dire consequences including poor public service delivery and persistently low levels of human development. This chapter interrogates the status of debt distress and its implications and offers some policy recommendations that could support a gradual improvement in public debt management. The chapter recognizes that public debt is a wicked problem with far-reaching effects and requires an interdisciplinary approach to resolve.

13. Chapter 12. Special Drawing Rights (SDRs): Country Experiences and Impact on Selected African Countries

    Michael Takudzwa Pasara

    Abstract

    This chapter analyses the impact of Special Drawing Rights on the Zimbabwean economy from a policy perspective. Zimbabwe received SDR 677.4 million (approximately USD 965 million) from the International Monetary Fund under the General Allocation Fund. At the global level, SDRs were meant to supplement international reserves and stabilise exchange rates in order to absorb economic shocks caused by the COVID-19 pandemic. SDRs in Zimbabwe have been marred by a lack of transparency in both disbursements and utilisation, leading to less than optimal perceived gains and loss of social contract between the government and citizens. This chapter provides a closer analysis of some historical as well as current experiences on the utilisation of SDRs. The chapter also analyses the relationship between SDRs and the National Development Strategy 1 (Zimbabwe’s key policy) as well as other country experiences in Southern Africa. The study concludes that the pandemic exposed the health and financial sector inefficiencies in Zimbabwe and revealed that stronger health systems, which incorporate universal health coverage such as the Abuja Declaration, are vital; SDRs only play a complementary role. The majority of cases have been that of mismatches between allocations of contingency funds and utilisation, which continue to expose vulnerable groups. The study recommends the following: (1) need to significantly boost foreign reserves and the Balance of Payment (BOP) position in Zimbabwe; (2) need to establish specific legal instruments on transitory or windfall revenue like SDRs within the Public Finance Management Act; (3) need to propose a liquidity ratio and framework to monitor their use; and (4) also need to prioritise sustainable projects as opposed to recurring expenditures, which take up approximately 70% of the national purse. Moreover, SDRs should be complemented by functional Development Banks to sustainably increase long-term financing of infrastructure to ensure economic shocks such as COVID-19 and the Russia–Ukraine conflict do not derail SDGs and other national objectives such as the National Development Strategy 1 (NDS 1).

14. Chapter 13. Coherent Trade Strategies for Zimbabwe Under the AfCFTA: An Application of the Partial Equilibrium Model

    Mazarire Ryan Takudzwa, Michael Takudzwa Pasara

    Abstract

    The chapter employed the World Integrated Trade Solution-Software for Market Analysis and Restrictions of Trade (WITS-SMART) simulation and Trade-based Index Approach to establish coherent trade strategies for Zimbabwe in the dawn of the African Continental Free-Trade Area (AfCFTA). Scenario 1 simulations show that AfCFTA will create US$421 million worth of trade and US$75 million of trade diversion annually, with maize and soybeans having the highest potential for generating trade of over US$100 million per year, whilst motor vehicles are most vulnerable to trade divergence. Zimbabwe will lose approximately US$280 million in tariff revenue per year, mostly through tobacco. Exports will rise by around US$496 million annually, with agricultural products contributing the most, whilst welfare will increase by US$50 million. The Trade-based Index Approach shows that African countries are lowly integrated. Furthermore, the revealed comparative advantage index discloses that tobacco, nickel ores, natural abrasives, hides and skins, pig iron, gold (non-monetary), and sugar have some of the highest revealed comparative advantages for Zimbabwe. Thus, strategies aimed at enhancing the trade policy included the review of the country’s sensitive products as well as implementing candid and irreversible liberalisation policies. Likewise, further development of the agricultural sector through the introduction of market-driven incentives coupled with government-led direct input provision schemes and tariff and tax reform are other strategies that may be considered.

15. Chapter 14. Food Security Sustainability in Southern Africa in the Context of African Continental Free Trade Agreement (AfCFTA)

    Michael Takudzwa Pasara

    Abstract

    This chapter explores the effects of the African Continental Free Trade Agreement (AfCFTA) by focusing on food security sustainability. In line with the Global Goals (2030), the AfCFTA is poised to boost intra-African trade by around 15–18% due to improved trade facilitation and removal of tariff barriers. The chapter analyzes the demand (population) and supply (production) and the volume of traded cereals across the 14 Southern African countries. It then explores how the removal of tariff barriers will likely influence food security status in the region. Some simulation case studies are also analyzed and applied using the WITS-SMART model, which estimates the welfare effects of tariff changes. The chapter recommends that the AfCFTA must be complemented by nontariff barriers such as improved cross-border facilitation and improvements in hard and soft infrastructure to maximize potential benefits.

16. Chapter 15. Building a Business Environment that Encourages Formalisation of Informal Businesses in Zimbabwe

    Tendai Mupfumira, Michael Takudzwa Pasara

    Abstract

    This chapter aimed to develop a framework for developing a business environment for formalisation of the informal sector in Zimbabwe. Using a small survey in the capital of Harare, which employed a mixed-methods approach, combining quantitative and qualitative data from a sample size of 106 informal Micro, Small and Medium Enterprises (MSMEs) (100) and key informants (6) based in Harare. The study revealed the key challenges for the surveyed informal enterprises are insufficient access to finance or credit for operations, lack of access to adequate markets and insufficient skills. The probability of paying taxes in the future stops small businesses from registering because they are too small. The results show the underlying challenges to the administration of tax to MSMEs. Despite the introduction of presumptive taxes, tax compliance by MSMEs remains low, mainly due to low revenue by the MSMEs, lack of information on how the tax system works and unwillingness to comply with tax laws. Access to financial support systems is the highest-ranked enabling factor for formalisation, followed by a favourable regulatory framework, technology infrastructure, access to markets, human capital development and physical infrastructure. The most required form of government support is to make the registration process free, make MSMEs aware of accessible business supporting systems, make company registration less time-consuming, offer incentives for formalisation, explain the benefits of formalisation, make information on formalisation easily accessible and enable the MSMEs to participate in policymaking. Guided by these results and reviewed literature, the study proposed a framework for formalisation of the informal MSMEs in Zimbabwe.

17. Chapter 16. Taking a Social Inclusion Lens on Persons with Disabilities and Public Finance Management

    Michael Takudzwa Pasara

    Abstract

    People with disabilities (PWDs) in Zimbabwe continue to face implicit social acceptance of violation their rights in rural communities (but also in urban communities) and widespread reluctance to address the issue. This problem statement triggers the need for public expenditure towards the inclusion and welfare of PWDs. This chapter analyses the strengths and weaknesses and areas of progress or stagnation by specifically focusing on how the national budgets have been allocated towards empowerment and social protection of PWDs. Public spending towards various indicators, including those related to access, participation, institutions and hard and soft infrastructure, is analysed using the latest available data in relation to various international and national commitments. Overall, the chapter concludes that whilst progress towards allocation of public funds is being made, it is not sufficient, especially given the cumulative deficits that already exist.

18. Chapter 17. Devolution and the Public Finance Management Framework in Zimbabwe

    Michael Takudzwa Pasara

    Abstract

    This chapter explores the complex devolution dynamics in Zimbabwe. Devolution has been a politically and economically sensitive topic in Zimbabwe for over four decades due to certain historical experiences such as pre- and post-colonial philosophies around Marxism–Leninism, Communism and Capitalism. Tribal conflicts also influenced devolution approaches. Some schools of thought posited a staggered economic devolution from central to local governments, whilst other schools argued that you cannot have economic devolution and development without political devolution. The various theories of decentralisation and devolution are explored in the chapter, including empirical experiences up to 2013, when a new Constitution was enacted. National budget allocations towards devolution are also discussed, with empirical evidence pointing towards the view that they are not only insufficient but also marred by late disbursements and utilisation unrelated to the Constitutional aspirations. The chapter concludes by providing some feasible ways forward such as increasing allocations towards the devolution fund, early disbursements, increased transparency and accountability mechanisms and increased operational autonomy of local authorities.