YESTERDAY, the Minister of Finance took to the lectern, to provide both an operational review of 2005 and unveil the income statement and balance sheet of Zimbabwe Incorporated for the twelv
e months to December 2005.
Unlike many a corporate executive, his address did not start by alluding to the customary; “The past twelve months have been a very difficult period with inflation .” but with optimistic rhetoric on the need for commitment to measures needed for the rescusitation of the economy.
Nothing new. We have been on this road before as promises to rectify the situation have all but come to nil. This time around, we did not get the “turnaround” strategy but were fed on the economic “take off” remedies.
What a disappointingly incomplete set of financials they turned out to be.
Many analysts and commentators are bound to be disappointed by the incomplete figures provided by the minister, who from initial appearances seemed to be missing some of his pages. For instance, for the third year in a row, no figure for nominal gross domestic Product (GDP) was given, leaving the public to resort to arithmetic to come up with the figure. What was only provided was that the budget deficit of 2005 of $6 trillion, 6% of GDP. Even for the 2006 expenditure and revenues figures and budget deficit estimates, one has to appeal to calculus. If one takes the capital expenditure budget of $30,9 trillion, said to be 20% of total, the figure comes out at $154,5 trillion. But in his summary, the Minister expects an expenditure outturn of $110 trillion. The funding gap of $13,9 trillion, estimated at 4,6% of GDP will again be financed through domestic borrowings.
In a surprising gesture, perhaps meant to cushion the public ahead of the full switch to market forces, the minister generously raised tax-free threshold for incomes and bonuses. The problem is that the supply-side of the economy was not sufficiently addressed such that all the monies released will find no goods to purchase. This may in turn fuel inflation as too much money chases few goods. It will however, come in handy, given the school fees figures being banded around.
After the scare that was the mid-term fiscal policy review, the budget has now assumed momentous and probably life changing proportions, that the markets, especially the equities, now look forward to the event with consternation.
However, it appears the need to raise money for the remaining six months was very critical, as many of the new taxes introduced in the mid-term fiscal policy review have since been reversed or amended. Those that appeared to have not been well-thought out have been amended and where it was nonsensical have been abolished. These include the reduction of withholding taxes on redemption of unit trusts, reversion of deduction of tax on interest on maturity rather upfront and the abolishment of the stamp duty on sale of marketable securities. It is true that the real winners of every budget statement are the tax consultants.
Many economists and even government officials had shouted themselves hoarse, exhorting the government to spend more on capital projects, in the economic sense of fiscal policy. We emphasise “economic sense”, because ordinarily buying cars is a capital project for the private sector, but the same does not apply to central government. The need to spend more towards infrastructure and the provision of an enabling environment for business to get on with it, and less on recurrent expenditure cannot be emphasised and has been well documented. The authorities seem to have little respect for economic theory, but, until yesterday it also appeared lost on them that our own home grown solutions, judging by past pronouncements which prioritised recurrent over capital expenditure, have so far failed to germinate into meaningful success.
The cries were finally answered at last with $30,9 trillion being provided for capital projects and it is now only a question of faith. One has to trust and believe that the government implements these capital expenditure projects with the swiftness and military-like precision exhibited in Operation Restore Order.
It is ironic that among the causes of inflation as enunciated by the minister, that money supply growth driven mainly by credit to government which in August, had grown by over 1 500% was consipicous by its absence.
We will reserve our comments on the possibility of attaining a 14% growth in agricultural production, which dovetail into a growth in real GDP of between 2 and 3,5%. Curiously enough, it seems that all the initial 2005 growth estimates were slashed in half. But what we are sure of is inflation is going one way and so will the stock market!