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Government lacks fiscal credibility

ZIMBABWE’S government has recurrently acknowledged its fiscus is bankrupt. Such an admission was made by the Minister of Finance, Patrick Chinamasa, when he presented his 2014 Budget to parliament last December.

Column with Eric Bloch

Zimbabwe has accumulated external debt of over US$6 billion, over and above considerable internal debt. That internal debt includes arrear salaries and wages due to civil servants, indebtedness to parastatals and to innumerable private sector enterprises.

In consequence of the magnitude these debts (the servicing of most being very grossly in default), and because of the extent government incurs excessive and often unnecessary expenditures, it is unable to fund adequately many essential expenditures.

These include education, health services, maintenance and enhancement of essential parastatal operations including energy generation and distribution, water supplies, rail services, maintenance of national roads, and much else. The appalling fiscal deficits are considerably compounded by substantial corruption, such as the reported existence of about 8 000 ghost workers as disclosed by an audit report issued by Ernst & Young, a reputable international firm of auditors.

In view of the magnitude of government’s debts, worsened by its continued inability to align expenditures with revenues thus intensifying its accumulated deficit, the concern and dissatisfaction of much of the populace is justifiably great. However, that concern and dissatisfaction is not exclusive to Zimbabweans, but is also a trigger for disquiet and anxiety internationally.

That negatively impacts upon Zimbabwe attaining foreign direct investment and development aid, critically needed for economic recovery and growth.

In 2013 the International Monetary Fund (IMF) did an extensive and comprehensive evaluation of Zimbabwean economic circumstances. Included in that appraisal was an exhaustive assessment of the operations and financial state of affairs of the Fiscus, including government’s fiscal policies and the realisation of those policies.

The outcome of the IMF’s investigations and assessments was a critical report, issued around August 2013. The IMF staff also interacted extensively with the hierarchy and senior officers of the Ministry of Finance, and apparently voiced not only their deep concern at the adverse fiscal circumstances, but especially so at the ongoing expenditure in excess of revenues, and at the resultant unsustainable deficits.

The concerns were vigorously expressed by the IMF at the Fiscal Staff Monitoring Programme it undertook.
The IMF must consider it wholly unacceptable that Zimbabwe has substantially breached its agreement with the IMF, and must fear that having done so it is probably in breach of other agreements.

These include diverse agreements with the IMF, World Bank, African Development Fund, and various others with leading international financial entities. Presumably, as a result of its defaults, Zimbabwe has severely endangered its essential relationship with the IMF and other bodies.

One of the most pronounced breaches by government of its agreement with the IMF was that it undertook it would not increase the bloated public service, but apparently an additional 10 000 were employed between March and August 2013. This is untenable bearing in mind that the Zimbabwean public service is already overstaffed.

The staffing level of over 40 000 cannot conceivably be necessary to run a country whose reduced resident population is less than 12 million. In particular, most of those engaged were employed by the army and Zimbabwe Republic Police (ZRP), both of which were incontrovertibly already over-staffed. Zimbabwe is not at war.

Consequently, almost the only services rendered by the military are parades at national functions and events.

Save for such duties, there is very little military service required in Zimbabwe. Indications are that the ZRP has more personnel than necessary. Illustrative thereof is that, almost daily, the ZRP is able to operate between 10 and 20 roadblocks on the Harare-Bulawayo national roads, and other main roads. While roadblocks are necessary in order to ensure public compliance with road traffic laws and to minimise accidents, ensuring such compliance is possible with a significantly reduced number of road blocks.

As worrying as the current circumstances are in relation to the magnitude and functions of the public service, government’s future intentions are of even greater concern. Currently, government’s wage bill approximates US$190m per month, against revenues of approximately US$200m per month, resulting in the state having only about US$10 million per month to fund all the other expenditures it incurs.

It is therefore most disturbing that there are now reports, emanating from government itself, of an intention to employ a further 8 000 to 10 000 civil servants. There can be no valid need for such a stupendous further enhancement of an already bloated public service.

This is a major destruction of Government’s credibility. It entrenches the belief that not only is government incompetent and wholly unable to operate with substantive fiscal probity, but that it also massive fiscal deficits.

This is strongly reinforced by government’s continued failure to address the issue of the identified 8 000 ghost workers, reduce Zimbabwe’s excessive number of ministries, curb international travel by the political hierarchy and senior public servants, or contain corruption.

Consequently, government is now devoid of fiscal credibility whatsoever nationally and internationally. This needs to be vigorously addressed if the dire consequences are to be reversed, and meaningful economic recovery achieved.

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