THE Zimbabwe government is facing challenges in the prioritisation, focussing and management of government expenditure and is as a result failing to influence the economy towards sustainable growth, economists have said.
In a recent study by economic policy analyst and public finance expert Jabusile Shumba and Mohamed Jahed, a Wits University professor and divisional executive at the Development Bank of Southern Africa, entitled Fiscal Space Challenges, Policy Options and Zimbabwe’s Economic Recovery, the country is faced with a difficult challenge of reconstructing the economy after a long period of recession.
“Zimbabwe has no option but to reform its budget and financial management and move away from political grandstanding, and instead instill strong fiscal controls and procedures,” the authors say.
Businessdigest spoke to Shumba, who said the study had been done following the country’s precipitous economic decline between 1999 and 2008 where they say the country cumulatively lost at least 48% of its GDP.
“Following the economic meltdown of the lost decade, Zimbabwe finds itself in a more than desperate situation as far as revenues are concerned. The challenge we are exploring is how the country came out of the hyperinflationary period to re-orient itself, and kick-start the economy onto a sustainable growth path,” Shumba said.
He said given the limitations of the country’s fiscal space, a comprehensive public recurrent expenditure review must now pre-occupy Zimbabwe’s policy makers in order to free more resources.
He said the study had challenged conventional wisdom that a strong state was required to power economic growth.
“We feel strongly that presently, Zimbabwe should really consider cutting its defence spending and seriously deal with the heavy expenditure by parastatals in order to create fiscal space.”
Recently, Finance minister Tendai Biti said the civil service wage bill was consuming more than 75% of the budget, a situation he said was not sustainable.
While revenue collection has improved remarkably since 2009, Shumba and Jahed contend the government has limited scope to increase revenues, further leaving the only options open being the reprioritisation of public expenditures towards growth-enabling public expenditure on infrastructure, health and education and cutting fiscal expenditure in the non-productive sectors such as parastatals and defence.
Shumba said the country’s public expenditure was dominated by recurrent expenditure and therefore typical public expenditure reductions should include cutting down the wage bill, trimming and eliminating subsidies, reducing transfer payments.
“The government currently employs an estimated 250 000 people generating a wage bill of more than US$960 million, working out at more than 70% of revenue collections, 60% of the total budget, and more than 15% of GDP,” the study states.
“Zimbabwe should seriously consider downsizing the civil service in order to make it more affordable, whether by merging ministries and/ or retrenching employees.”
Zimbabwe also spends significantly more in the security and safety sector than it does in the productive sectors with 26% of public spending going towards defence and security.
“Measures targeted at reducing government-sponsored military interventions and cutting down the size of the security sector are critical to freeing resources towards growth-enhancing endeavours,” says the study.
Defence expenditures can only be productive if they are supporting, for example, an enterprise for exporting military equipment, something that has not been the case for Zimbabwe in a long time.
The economists further recommended that, in addition to privatising loss-making parastatals which have been a drain on the fiscus due to inefficiencies and ballooning losses; government should also consider public-private partnerships (PPPs) to finance infrastructure rehabilitation and development in the transport and energy sectors.
“This approach has shown positive results within the Sadc region including South Africa where PPPs have been successfully deployed in the development of the transport sector,” the study says.
In their concluding remarks, the experts said that the creation of an enabling business environment was critical, describing the current business regulations as confusing, arbitrary and costly.
“They inhibit business start-ups, repel foreign investment and reduce productivity.”