By Tendai Biti
POOR Sam Mumbengegwi! Some men are gifted enough to hide their mediocrity or at least to hide the mediocrity of their work. But alas, the talentless
Minister of Finance possesses neither attribute.
The supplementary budget he presented on September 6 is an indictment not just of the person of Mumbengegwi but of the regime in Harare.
That the supplementary budget can exceed the original budget presented in December 2006 by 800% betrays a lack of elementary understanding of the nuts and bolts of economics. But even more importantly, it exposes the fact that the regime has no control over this failing economy and, worse still, that it does not care.
The very appointment of Mumbengegwi as a replacement of the affable Herbert Murerwa is a reflection that President Robert Mugabe does not give a hoot about basic economic housekeeping fundamentals such as budget balancing and macro-economic stability.
A number of critical issues arise with this supplementary budget. The first is that as a supplementary budget, it is not located in any policy framework. The budget is a major fiscal tool that should be grounded in some major policy framework.
The existing fiscal planning tool that this regime is nominally bound by is the National Economic Develeopment Priority Programme (NEDPP) launched in March 2006. The budget therefore should have been a complementary tool for the objectives and roadmap designed in the NEDPP. Sadly, the supplementary budget is not anchored in this. Instead, it is a hotchpotch of contradictory and self-defeating policy tools.
Stripped to its bare bones, the supplementary budget betrays the contradiction in the Zanu PF state between, on the one hand, the need to be loyal to basic economic fundamentals and, on the other, the power retention agenda in which state resources will be spent without reason, logic or limit purely for the purposes of maintaining and reproducing power.
Thus, while Mumbengegwi implicitly acknowledges the catalpetic effect that a huge budget deficit has on inflation and fiscal discipline, he nevertheless succumbs to the power retention agenda by producing a supplementary budget that is loyal to this cause and this cause only.
One finds that the amounts allocated to the President’s Office (which houses the notorious Central Intelligence Organisation), the Ministry of Defence and the Ministry of Home Affairs are a staggering $12,662 trillion, which is 33% of the supplementary budget.
If one adds the traditional government slush fund — the unallocated reserve under the Ministry of Finance vote — of $2,4 trillion, then in fact the amount being allocated to the securocrats is 43% of the supplementary budget.
The net effect of the expansionary fiscal deliquency is that there will be a major increase in the stockpile of domestic debt from $8,1 trillion to at least $16 trillion, in our view.
Furthermore, while a huge budget deficit does not necessarily have to be destructive, ours is, given that more than 70% of that budget consists of consumptive recurrent expenditure in the form of interest payments and wages. To the extent that the budget deficit and the debt are financed by domestic borrowings, the government has yet to engineer negative interest rates with the consequent debilitating effect on savings.
What it means right now is that Zimbabwe is experiencing negative net savings of -5% of gross domestic product (GDP). Without savings being at least 30% of GDP, there is no way this regime, or any other government for that matter, can resolve the supply side of the economy through use of domestic resources.
What it means, therefore, is that Mugabe’s policies have made this country more dependent on foreign inflows for the recovery of our economy.
Put simply, the regime that has made sovereignty its national mantra has stolen the economic sovereignty of this country.
A key question to be asked is: how will this government finance the supplementary budget?
In answering this question, one must recognise the minister’s admission that of the cumulative revenue of $3,4 trillion collected up to June, 30,3% came from value-added tax (VAT). But since June 18, when the government embarked on its crackdown on prices, or ginyanomics as we called it, the receipts from VAT have shrunk by more than 80% as a result of that ill-advised adventure.
The situation is going to get worse in view of the enactment, through presidential powers, of the new price control regulations, SI 159A/2007.
However, one does not need to be a rocket scientist to understand that the regime has set itself up for further printing of money. With all the disastrous consequences associated with this treasonous act, the act of printing money has unashamedly been glorified to the status of a revolutionary achievement!
Reserve Bank of Zimbabwe governor Gideon Gono, defending the same in the latest edition of the banal New African magazine, states as follows: “Only the bullfighter knows what goes on in the ring . . . We are guided by conviction and not convention, and where convention meets conviction, well and good. What drives us is the belief that we are doing the correct thing . . .”
That is Zanu PF economics for you!
Moreover, the fact that the supplementary budget is presented without disclosing the estimated revenue is quite clearly dangerous and unacceptable. In any case, it is an implicit breach of the provisions of Section 103 of the Constitution of Zimbabwe, which requires full disclosure of both the revenue and expenditure components in an Appropriation Bill.
A further glaring contradiction of the budget statement is the devaluation of the Zimbabwe dollar by 99,2%. As we have argued before, any devaluation done that is disconnected to an overall supply side strategy engendered by a comprehensive fiscal and monetary policy is meaningless. It will simply exacerbate the crisis. The same is true of the devaluation.
Firstly, it is unrealistic given that the parallel market rate of the Zimbabwe currency is $250 000 to the US unit. There is no chance therefore that the latest move will have any meaningful effect towards the stimulation of exports. All it will do is to add further distortions to the exchange rate matrix.
The same is true of the move to increase the minimum tax threshold to $4 million. Given that the poverty datum line is $8,5 million, $4 million becomes an insult. Moreover, another pertinent question is whether there is still a significant number of people in formal employment.
The supplementary budget fails to acknowledge the quasi-fiscal activities that have become a favourite pastime at the RBZ, which quasi-fiscal activities have never been scrutinised by parliament. In the 2006 financial year, the amount of money spent by the RBZ in quasi-fiscal activities was $370,9 billion, which was at par with the national budget presented by Murerwa, who then paid a price for the full disclosure of those activities by being fired.
Quite clearly, the out-of-depth Mumbengegwi has neither the courage nor reason to demand full disclosure from the RBZ. The point being made is that the national debt and the budget deficit in real terms are much higher than what has so far been disclosed.
Furthermore, it means that the push on inflation and the further impoverishment of the ordinary Zimbabwean will increase. Put simply, we are in a rut!
One cannot run an economy on the basis of throwing lots or consulting sangomas. At least under Simba Makoni there was an element of comprehension of rudimentary economics.
Clearly, the task at hand is beyond the overfed fellows at number 80 Samora Machel Avenue and at Munhumutapa building. As we have argued before, only a political solution, predicated on a new, people-driven constitution and free and fair elections, is a starting point to the resolution of the multi-faceted Zimbabwean crisis.
Otherwise this house has fallen!
Tendai Biti is MDC secretary-general and MP for Harare East.