HEIGHTENED expectations were replaced with sobre realities in the aftermath of last week’s national budget presentation by Finance minister Tendai Biti, with business leaders and economists saying the reality of the country’s dire situation has now been laid bare after a few home truths were told.
Comment by Clive Mphambela
Biti’s US$3,8 billion 2013 budget came as no surprise, although it showed that not only is the county’s financial system in shambles and in need of urgent fixing, but also that the political situation poses a serious threat to economic recovery.
The minister said while the economy has stabilised and recovered significantly, it was still dogged by grave downside risks which could scuttle long-term recovery and stability.
Biti admitted serious downside risks facing his 2013 budget, a message which overshadowed the positive signals he sent during his budget speech.
He said these included the threat of another poor rain season; the collapse in international commodity market; further external shocks in the context of current limited buffers; the “wait and see” attitude from investors; slow pace of reform in government; continued discord and cross-talk particularly on the issue of investment and indigenisation; lack of proper revenue inflows particularly from diamonds and fiscal slippages and overruns, especially emanating from referendum and election costs.
While all these downside risks are significant, the two main threats to the outlook are the possible resurgence of political instability ahead of elections next year and a global economic downturn. In particular, a sharper recession in Europe and deceleration in China would significantly affect commodity prices as well as activity in South Africa, Zimbabwe’s major trading partner.
But the real problem, Biti said, was political. “The biggest risk to this economy in 2013 remains that of violent, contested general elections. Any reproduction even on a small scale of the fraticism (fratricide) and friction we saw in 2008 will virtually collapse the nascent foundations we have tirelessly re-laid in the last 45 months.
A case of two steps forward and 20 steps backwards.”
Political crises place a premium on development, he said, adding Zimbabwe cannot afford to carry-on along these cyclical paths of permanent conflict temporarily suspended by short periods of peace.
Analysts say government is failing to provide leadership and direction to the economy because politics and self-interests have taken centre stage, while corruption and rent-seeking behaviour are now deep-rooted.
This is crowding out national interest and the greater public good as revenue leakages continue unabated, whilst the little that is being collected seems to be funding little more than the material needs and lavish lifestyles of those in government.
Economic analyst Professor Tony Hawkins told the Independent this week the problem with the budget is not that of size, but of “allocative efficiency”. “The budget is not small compared to the size of the economy, 34,5% of Gross Domestic Product (GDP) is relatively large. However the real problem is that we are spending more than we can afford,” Hawkins said.
“If we work out the deficit correctly, by including accumulated arrears on the domestic and external front, you find that the deficit is much higher than the US$260 million Biti has indicated.”
Hawkins said, however, Biti tempered his budget speech with a healthy dose of realism. “In the past the minister has been overly optimistic in his assumptions,” Hawkins said.
According to Biti’s financial plan, total revenue of US$3,8 billion is anticipated in 2013, translating to 34,5% of GDP.
Of the total revenues, recurrent expenditures is set at US$3,3 billion (86,4%), with only a balance of US$500 million (13,6%) left for the capital development budget.
Hawkins said one of the critical problems with this economy is the balance-of-payments position and an unhealthy fiscal position where 73% of resources are being consumed in recurrent expenditures.
“Another critical issue is the sheer lack of realism on the part of those parliamentarians and ministers involved in the Copac process,” Hawkins said. “The debate over the constitution has been wasteful in its own right but what is worse is that they want devolution, a bigger parliament and probably a bigger cabinet which all have implications for the budget and economy.”
KM Financial solutions and past president of the Zimbabwe Economic Society, Kenias Mafukidze, said the public sector is too big for the size of the economy.
“The major problem with our budgetary process is that the budgets are all too short-term in nature and are not speaking to a long-term strategy. It’s almost like someone taking rapid steps in succession but going nowhere. Each annual budget seems to nibble away at a few issues without making any real impact,” Mafukidze said.
“The whole idea of our spending pattern is wrong and is influenced by political considerations rather than the realities of the economy.”
Bankers Association of Zimbabwe president George Guvamatanga said the budget for the first time had a large dose of realism.
“I am happy and can relate to the budget because we have tried to be realistic with the situation we are facing,” he said. “However, what is also very clear is that the economy will not go anywhere without external financing and capital.”
Guvamatanga also said “internal politics is making the investment climate relatively toxic”. With respect to the banking sector reforms, he said bankers supported the minister and central bank authorities’ efforts.
Bulawayo-based economist Eric Bloch said revenue leakages were damaging the economy. “Clearly the level of import taxes and duties being collected is reflective of that taxation issue badly managed. It points to a lot of bribery and smuggling going on at Zimra ports,” he said.