HomeBusiness DigestTime to make corrective economic decisions

Kasukuwere bulldozes his way

MAINTAINING the growth momentum in the economic stabilisation phase is a very crucial element in creating both private and public sector confidence especially when coming out of a 10-year recession.

And the ability of Zimbabwean policymakers to keep delivering the growth promise has its key roots in their choices of sustainable policies. Worldwide, governments have varying histories of making good and bad decisions, but what always makes the positive difference at the end of the day is the consistence in making more good decisions and reducing the incidences and implementation of bad decisions for a long time.
The price slashes of yesteryear, wholesale economy-wide subsidies and exchange control regulations are some of the bad economic decisions by the Zimbabwe government that were implemented and believed in for a long time, and the results of such policies have left a huge dent on the economic landscape.
The time has come again for the Zimbabwe government to make hard, but corrective decisions. There is need to implement drastic civil service reforms to unlock the obtaining scarce financial resources towards more productive sectors of the economy ahead of the wasteful consumptive expenditure taking 70% of domestic revenue.
After placing too much and indeed questionable faith on the influence of donors on funding the 2010 Budget, realities of donors not playing ball have come to poke holes in the optimism of the stabilisation process. Having received only about US$3 million of the anticipated US$810 donor support by end of March, the Zimbabwean government has little option but to re-write the 2010 Budget during the half-year review and institute a serious civil service reform.
Donor challenges are not uncommon at all in Africa. Mozambique has seen challenges after donors threatened to withhold US$472 million in the 2010 budgetary support, while Malawi had to plead with the IMF for it to negotiate with donors to release US$545 million they were withholding in budgetary support. Malawi is one of the highest per capita aid recipients in Africa with donors supporting 40% of its budget for about 14 million people. 
Zambia was equally left in limbo when
donors threatened to suspend US$600 million in aid for the 2010 Budget over allegations of public sector corruption, and the government had to dig in by making budgetary cuts. Tanzania, having had a fair challenge with some donors in the past, has about US$831 million donor funding for the 2009/2010 Budget, constituting about 12% of its budget from about 14 major donor countries.
These figures show that donors still play a very crucial role in providing development finance in many African countries, but it is important to note equally that getting significant donor funds in not always easy and understanding donors’ behaviour is vital for Zimbabwe when making budgetary consideration on such funds. There are so many conditions that donors attach to their bags of cash. 
Failure to meet such conditions invites threats, the many threats that always create uneasiness in many Finance ministers in Africa as they prepare their budgets with begging bowls in hand.
Unfortunately the Zimbabwean government has little room to tweak the revenue side to meet the original budgetary expectations. Domestic borrowing, though inexistent but very crucial at the moment, will be lucky to raise over US$300 million considering low deposit levels in the banking sector below US$1,5 billion and risk averse. Very few options therefore remain at hand for the Zimbabwean government in raising the revenue levels from the projected US$1,4 billion for the 2010 fiscal year. The privatisation route, a process that cannot be hastened considering the deplorable nature of some of the key targets, is nothing to write home about, although it would still be crucial to stop fiscal bleeding through subsidies to inefficient parastatals that have long ceased to be valuable by any measure of economic logic.
The government, being the largest employer and capping salaries at less than US$300 per month, has spelt gloom on the private sector wages expectations. Vibrant domestic demand is what will pull the Zimbabwean economy back on track as that will provide a strong market for domestic producers, whilst the secondary effect on government revenue would be quite significant.
Inasmuch as the current weak government finances diminishes the rate of economic recovery, more can still be done to create an efficient public finance management programme that will spur growth faster than the current rate of growth.
The current government wage bill at 70% of the domestic revenues is unsustainable and reveals deep-seated inefficiencies in the government decision-making processes and prioritisations.
The Zimbabwean economy has shrunk by over 40% since 1999, whilst the civil service figures have hovered around the same levels over the same period. The priority of the government therefore should be to have a credible and effective civil service reform that should reduce the number of civil servants by almost half, an exercise that will unlock at least US$200 million annually toward capital expenditure, which in itself will self-correct the situation over time by creating more employment opportunities.
Although this is a politically sensitive issue especially ahead of elections that can be held anytime from 2011, the Zimbabwe unity government should understand that making this decision collectively now could be the best option for the party that will eventually win the elections.
The winning party will begin on more efficient government structures and will most likely be able to deliver pre-election promises than having to start cleaning up the mess from day one in office. For a country whose average civil service salaries had plummeted to less than US$10 per month in 2008, the current civil service salary levels today around US$200 per month are a major milestone although more needs to be done to bring cascading salary scales that will allow the public service to attract efficient labour into its structures. Zimbabwe has suffered massive brain drain on the back of deteriorating economic conditions and attracting good engineers, administrators, scientists, economists, IT specialists etc back into the civil service today is most difficult to imagine considering the poor working conditions and gloomy prospects.
The average salary in South Africa is about R 16 500 per month (US$2 200) compared to the average wage in Zimbabwe below US$500. Considering that the average wage in Zimbabwe was US$1 546 in 1990, more needs to be done in aligning government priorities towards sustainable growth, and it starts with its budgetary priorities.
Therefore government, in the quest for sustainable fiscal expenditure and efficient service delivery through proper skills retention and attraction, has very little choice but to implement a drastic civil service reform at the earliest possible time to minimise many economic losses emanating from excessive expenditure on recurrent expenditure and shortage of proper skills. 

Brains Muchemwa is an Economist. He can be contacted on brainsmu@gmail.com

 

By Brains Muchemwa

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