Eric Bloch: Govt expenditure must be reduced

LAST week Finance minister Tendai Biti commenced public consultation on what should be the content of Zimbabwe’s budget for 2011.  That he intends to consult widely is very commendable, although some have reservations and concerns as to the genuineness and credibility of the consultation process. Bearing in mind that invitations for participation at the first consultation sessions were only issued with 24 hours notice, resulting in a large chunk of the business community being unable to attend, due to prior commitments. 

Moreover, feedback from some who did attend suggests that, to a very major extent, the so-called consultation was a detailed recounting by the minister of his intentions, with only limited opportunity for attendees to respond.  Notwithstanding, Biti deserves commendation for his declared resolute intent to adhere to his policy that government should only spend that which it has, instead of emulating past governments by endless accumulation of unsustainable, unserviceable, crippling debt.  It is also praiseworthy that he remains determined that Zimbabwe continue to use a multi-currency basket, instead of reverting to its own currency, until such time as the Zimbabwean economy is evidencing continuing economic stability and growth.

Disturbing, however, is that the Finance ministry’s focus is almost wholly upon increasing government revenues, with particular emphasis upon new and increased taxes.  Whilst enhancing fiscal revenues by maximising tax compliance is necessary and positive, raising taxes would be most counterproductive, irrespective of whether the tactic for doing so is to increase rates of existing taxes, or to introduce new taxes.  Either or both of such measures to achieve increased revenue would have very negative effects upon the drive for economic recovery.

On the one hand, with many of Zimbabwe’s taxes being at levels greater than the southern African region, taxation increases would a  major deterrent to the much needed investment which is a pre-requisite to economic recovery and growth.Increased taxes are counterproductive in that they diminish  the purchasing power of the populace, resulting in markedly reduced revenues for commerce and industry, and various other economic sectors.

High taxes are also a stimulant for increased exodus from Zimbabwe of the skilled, and Zimbabwe’s skills resource has already been sadly depleted.
If he is to achieve a balanced budget which suffices to meet all essential governmental costs (inclusive of civil servants’ salaries and infrastructural rehabilitation and development) Biti’s focus must be upon stimulation of accelerated economic recovery, and upon cost containment.  Achieving accelerated economic recovery is, regrettably, not wholly in his hands, but requires constructive action by government as a whole.

That action must include dismounting from the government’s high horse of destructive policies of indigenisation and economic empowerment, and instead recourse to substantive measures of genuine indigenous economic advancement, on a broad-based approach beneficial to a significant proportion of the populace, instead of the chosen few, and founded upon new economic development and expansion, rather than mere transferrals of ownership.   The action must also include an effective revitalisation of land reform, with full respect for property rights.  Another prerequisite is the belated compliance with Bilateral Investment Protection and Promotion Agreements, and through genuine interaction and reconciliation with the international community.

However, Biti can substantially further aid the economic recovery by realistic realignment of Zimbabwean taxation (both direct and indirect) with regional averages, and by the introduction of meaningful investment and export incentives, as well as employment-creation incentives.

He can also do so by vigorously restoring credibility to the central bank, by ensuring its substantive recapitalisation, and by enabling speedy and total settlement of its debts, including the long-overdue redemption of the gold bonds, and reimbursement to exporters and NGOs of expropriated foreign currency deposits.   To such extent as he cannot do so immediately, he can at least designate the gold bonds as prescribed assets, thereby enhancing their tradeability, and can allow them to be used for settlement of any indebtedness to government for taxes or other imposts.

The minister’s primary focus must, however, be upon a gargantuan containment of government expenditure.  How can an impoverished Zimbabwe justify its president being accompanied by 80 people on a week-long junket to the United States, when he was representing Zimbabwe at a United Nations General Assembly?  Surely the attendees could have been limited to himself, an aide, the Minister of Foreign Affairs, and his aide, and very possibly one or two others. That would have saved the beleaguered Zimbabwean exchequer in excess of US$100 000.  And, as the president, or his ministers, or both, have innumerable international trips each year, the costs of their being accompanied by such vast entourages must inevitably amount to millions of dollars, which Zimbabwe cannot afford to spend.

In like manner, the minister must determinedly pursue his admirably declared intents to eliminate the plethora of “ghost workers” within the public service, and to contain the indisputably great, and extremely costly, corruption that prevails in the public sector.

Biti must also motivate other ministries to embark upon massive cost containment and reduction.Surely the Foreign Affairs ministry could reduce the number of embassies and consulates that Zimbabwe has abroad, by consolidation in different regions.

Similarly, it must be undoubtedly possible for major reduction in the magnitude of Zimbabwe’s armed forces.  The only war that Zimbabwe is engaged in is an economic war.  It is surrounded by friendly states, not enemies.  Does Zimbabwe really need a massive defence force, merely to engage in parades and official ceremonial duties?  Equally, the minister needs to use his best endeavours to convince the inclusive government that Zimbabwe, with a resident population of less than 12 million, does not need more ministers and deputy ministers than the United States, the United Kingdom, South Africa, and innumerable other countries.

If at all possible, Biti also needs to motivate government to cease dragging its feet on privatisation of parastatals.  As has been witnessed in numerous other countries, privatisation generally enhances parastatal efficiencies, and therefore benefits the economies.  Concurrently, government would access funding from disposed assets, whilst being absolved from having to provide funding to insolvent state enterprises.  Zimbabwe has talked of privatisation for more than two decades, but the correlation between talk and action has been minimal.

If the minister can progress measures of economic development and growth, expenditure containment, investment motivation and facilitation, and parastatal privatisation, concurrently with achieving a balanced budget which fully addresses critical needs, the prospects of real and ongoing economic recovery will be greatly enhanced.

 

By Eric Bloch

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