Intensifying government bankruptcy

A WEEK ago, many newspapers and other media reported that Finance minister Tendai Biti stated that, after payment of January salaries to the civil service, the balance remaining in the state’s coffers was US$217, evidence that “government finances are in paralytic state”.

Column by Eric Bloch

Almost immediately after the release of those reports, the minister said he had been quoted “out of context”. There was no reason to doubt the veracity of the minister’s contention that the reports were misrepresentative of what he had said.

Nevertheless, the Zimbabwean fiscus is in a parlous state, as disclosed by the minister in his four annual budget statements and three mid-year budget review statements. The magnitude of the state’s impecunious circumstances is also irrefutably evidenced by both the extent of its indebtedness, which exceeds US$11 billion, most of which debts are long overdue for prescribed settlement.

The intensity of the lack of fiscal resources is also incontrovertibly demonstrated by the considerable extent to which government recurrently fails to effect timeous payment for essential services which the state is prescribed to provide.

Critical, albeit substantially unpalatable actions are necessary to address and reverse the government’s impecunity. Funding must be generated as rapidly as reasonably possible to enable timeous payments of the state’s operating costs (of which the greatest portion is the salaries of the civil service), funding for rehabilitation of the decimated infrastructure that is essential to the proper functioning of the economy, and the wellbeing of the populace as well as the progressive settlement of debt.

Simultaneosly, very stringent and effective diminution of expenditures is essential.

The generation of enhanced revenues is a near impossible task insofar as recourse to taxation measures are concerned, for Zimbabwe is already very heavily taxed at levels greater than prevail in much of the region. Increases in taxes not only compound the hardships which confront most of the population, but also constitute intense deterrents to economic growth in general, and the motivation of much needed investment in particular.

While effective policing of taxpayer compliance is an ongoing necessity, such policing must not be excessive, oppressing and unjust. The most effective way of achieving increased inflows of taxes is to ensure economic growth, thereby broadening and increasing the tax base without intensifying the tax burdens of current taxpayers, save and except if their taxable incomes increase.

However, some significant enhancement of revenue inflows to the fiscus would be achieved if government more effectively contained the extent of tax evasion in general, and of import duties in particular.

It is a fact that huge quantities of goods enter Zimbabwe through unlawful channels, thereby evading customs duties, value-added tax, and other imposts.

However, the most constructive manner to progressively bring into being a financially stabilised fiscus is the containment of government expenditure, and the opportunities of doing so are manifold. The minister has intimated an intent by his ministry to be very heavily focussed upon cost-cutting by government, including achieving a meaningful reduction in the size of the civil service.

Yet another ready opportunity of achieving diminution in government expenditure is vigorous action to contain the immense corruption characteristic of government in Zimbabwe, which involves many of the personnel employed by the state in general, irrespective of rank.

The solicitation of “handouts” to influence the award of contracts impacts negatively on contract prices; the expropriations of diverse consumables from the stores and offices of government are substantial contributors to costs, as are also the unauthorised usages of state assets.

Expenditure reduction can also be achieved by diminution of government delegations repeatedly travelling abroad. In like manner, Zimbabwe should seek to reduce not only the excessive number of embassies and allied diplomatic presences abroad, but also the numbers employed therein.

A key area which must also be focused upon is disinvestment from parastatals and effectively privatising them. That would bring to a halt the magnitude of governmental subsidisation of those state enterprises, including unnecessary assumption of the vast accumulated debts of those state enterprises.

And, having for years deliberately avoided seeking debt relief by striving to be accorded internationally recognised Heavily Indebted Poor Country (HIPC) status, government now needs to pursue its declared intent to obtain such status, which would not only result in rescheduling of much of Zimbabwe’s debt-servicing arrears, but also progressive substantial debt forgiveness.

Presently, compounding the state’s parlous financial circumstances is that it is absolutely essential that the already long overdue referendum on a new national constitution is conducted, followed by presidential and parliamentary elections, for the proper conduct thereof would be a meaningful stimulant to procurement of investment, rebuilding of national confidence and economic growth, with consequentially improved fiscal inflows.