FINANCE minister Herbert Murerwa’s budget next week will focus on measures to restructure government debt and rein in expenditure, documents in possession of the businessdigest reveal.
A meeting of the business community, bankers and Ministry of Finance officials three weeks ago, noted that reduction of inflation and policy inconsistencies would go a long way in influencing investor perceptions and expectations of Zimbabwe.
The recommendations at the meeting are likely to form the crux of the budget.
The meeting was meant to discuss the “possible policy direction in the restructuring of government debt from short-term to long term debt and financing of the 2006 national budget, especially capital expenditure”.
At the meeting, the government was represented by Judith Katerera, the principal director in the Ministry of Finance.
According to minutes of the meeting, the use of money supply as a nominal anchor in the fight against inflation when, in fact, there are more factors driving inflation than money supply growth is not appropriate.
“There is need to target inflation and not money supply growth,” the minutes state.
Of concern to the private sector was the need to raise the proportion of capital expenditure in budgetary allocations so as to support projects that have the potential to generate real income in the country.
“Firstly, there is a need to work towards rectifying the weak fundamentals, particularly reducing inflation, before any serious restructuring of government debt can be attempted,” the minutes state.
“Control of inflation, backed by policy consistencies, will go a long way towards influencing investor expectations.”
The budget will be presented on Thursday. Domestic debt, which over the past two months has been heading north, has largely been pushed by excessive government reliance on money from the central bank.
Currently, domestic debt is $14 trillion, having increased by $2 trillion in a space of two months, a trend which has been blamed on the need to finance civil servants’ salaries.
“There is a need to create a secondary market for government debt, which will give the holders of such paper (boll or bonds) the right to sell to third parties even before the maturity date. Securitisation of government debt should encourage voluntary participation by investors,” the minutes said.
“Evidence shows that such mechanisms have less adverse effects on the economy than forced purchase of government debt.”
At the meeting, it was recognised that there was need to incentivise private sector participation in funding capital projects.
Having the private sector incentivised could include transparency in the tender procedures so as to enhance investor confidence in the whole process.
The private sector also pleaded with the government to create a stable environment with consistent supplies of raw materials and equipment.