‘Air pie’ economics in fiscal management

Juniours Keynes Marire

THE Minister of Finance Tendai Biti presented his mid-term fiscal policy review on July 18 amid high expectations of new measures to rescue an economy that is showing signs of being bed-ridden again.
Civil servants were disgruntled before the review, now they are fuming with anger and frustration and threaten job action. Women demonstrated against the rising maternal mortality rate that is standing at 960 per 100 000 live births before the review and there is still little to smile about.

 

The minister himself acknowledges funding for social sectors such as health declined and so did employment in the health sector. The health sector reportedly lost 658 personnel. Keynote budget targets such as improved maternal and child health care programmes through gradual elimination of user-fees failed to take off.

 

Agriculture is expected to decline by almost 6% and as a result national economic growth rate has been revised down to 5,6% of GDP from the original 9,4%. This is a major surprise. It shows that national budget assumptions were fundamentally flawed and unrealistic. Assumptions that hinged on the goodwill of God through adequate rains have always pervaded national budgets since 1980 and major surprises have always occurred, but no long-term solution has been sought. That is air pie economics in fiscal management!

 

There are a number of things we have to bear in mind. All the imperatives in the review are short-term — ranging from the revenue measures, tax reform proposals and other expenditure decisions. The so-called binding constraints in the review are just on paper and in reality they are secondary issues to the government of national unity as they were to its predecessor.

 

The review covers the entire economy but I don’t see concentration on 20% of that delivering 80% results. First, Zimbabwe is one of the countries in Africa, if not the world, with the largest number of inland fresh water sources. Climate change has taken its toll on the global economy of which Zimbabwe is part, but policy-makers year in, year out complain about bad rainy seasons. No serious effort to invest in a comprehensive national network of irrigation infrastructure has been made.

 

This means our leaders don’t take food insecurity as a threat and it is not a binding constraint to them either.

 

Secondly, disunity and policy inconsistency in the inclusive government are not getting the attention of the principals and all in government.

 

 

About 73% of the national budget will be the wage bill by year-end, while capital expenditure will end the year at 11% of the budget. The remainder will be on account of government operations.

 

This situation indicates one of two things: that the civil service is inordinately large just as the coalition government itself is a millstone around the economy’s neck or that the minister and the principals don’t see government size as a binding constraint, hence the continued growth in employment numbers, especially in police, army and education.

 

How will fiscal space be created to decisively deal with dilapidated public infrastructure such as roads, rail system, airports, water and sanitation, among others? An economy whose capital base was decimated by hyperinflation, deindustrialisation and mismanagement requires a distinct recapitalisation phase, and that had to be a top priority as of 2009, otherwise Zimbabwe remains a consumer economy. There is a risk to that — the current account will deteriorate beyond the US$1 billion mark and a balance of payments crisis will eventually unfold, with major capital flights taking place.

 

Third, lack of commitment to conclusively deal with the land audit process to pave way for issuance of negotiable and transferrable titles to land indicates one of many things, including that we could be having instances of multiple farm ownership among ourselves — the system we fought against in the first place.

 

Fourth, our external debt (about US$10,7 billion) as a nation is unsustainable, standing at no less than 111% of GDP.

 

Government has for more than three years failed to institute a debt audit. Who contracted the debt? For whom and to what was the debt allocated? How transparent was the debt acquisition process? The consequences are vast. Some of the consequences are poverty, high unemployment levels, youth despondency and the current account crisis that is very imminent. How?

 

Debt-service spending is a current account item, and one can imagine how such a huge debt can dig into domestic resources for development. The government doesn’t consider this debt a binding constraint. A public debt commission is needed to carry out the debt audit. More reforms that deal with the debt contraction process to make it more transparent are also needed and this also helps to avoid further debt accumulation.

 

There is need for the inclusive government to go back to the basics as the minister says, but the first fundamental building block is crafting a social contract which the coalition government failed to facilitate when it came into existence in 2009.

 

Binding commitments on political parties, labour, business and government must be secured. Unless that is done, there will be turmoil as labour demands higher and higher wages, the security sector employs further, the legislature demands additional luxuries and government officials go on more foreign trips whose benefit to the nation are minimal compared to resources spent.

 

What is needed is real and final civil service audit, disqualifying whoever was employed without Treasury approval since 2009; a rigorous debt audit and ascertaining what debt is legitimate and what is not: thereafter there will be need to negotiating payment of genuine debt plus real and final land audit paving way for instruments that facilitate agricultural financing and transformation; a conscious and focused effort to diversify from rain dependency in our agriculture by rolling out countrywide irrigation infrastructure.

 

The most important step is to ensure that strategies for channelling mineral revenue proceeds to Treasury are mapped out. The Zimbabwe Revenue Authority can’t and will never mobilise enough resources for a sustainable recovery given the dwindling taxable base in the economy.

 

The current tax regime is itself a binding constraint. It is revenue-maximising rather than growth-maximising and what that implies is that the tax base remains narrow and shallow. Reforms in the opposite direction of what the minister proposes in the review are needed.
l Marire writes in his personal capacity. Feedback: marirejune@yahoo.com