LATEST economic figures showing government sustained a US$19,5 million budget deficit, while falling short in tax revenue collections by 6,3% as of August 31 further confirm Treasury’s fiscal crisis is exacerbating.
Zimbabwe Independent Editorial
Cumulative tax revenues in the first eight months of the year stood at US$2,204 billion against a target of US$2,35 billion, largely weighed down by poor performance on customs duty, corporate tax and Value Added Tax.
The country’s trade deficit in the nine months to September stood at US$2,84 billion from imports worth US$4,65 billion and US$1,81 billion exports, reflecting collapsing production while consumption is skyrocketing.
This, coupled with the budget deficit and overruns particularly on the wage bill on which treasury shelled out US$1,386 billion against a target of USS$1,296 billion — a 7% cost overrun — has left government deeper in dire straits.
The 2014 budget provides for US$2,998 billion on employment costs with outturn to December projected to be around US$3,2 billion. This will result in cost overrun of US$210 million emanating from salary adjustments effected in January.
Meanwhile, government’s tax base continues to shrink as the economy sinks deeper into recession, amid company closures and retrenchments. Treasury authorities are thus under pressure to reduce the wage bill which gobbles close to 80% of revenues, crowding out capital expenditure.
Finance minister Patrick Chinamasa last month said government revenues were tumbling from its targeted US$4,1 billion to US$3,8 billion, a variance of 6,6%. So, he needs a US$950 million supplementary budget — which will create a staggering budget deficit.
Broadly, projected economic growth for 2014 has been revised from 6,1% to 3,1%, confirming Zimbabwe is now technically in recession after a drop in GDP in two successive quarters.
This shows the economic rebound experienced since 2009 has ended, with growth decelerating for the second year running.
Officials need to think in that framework to tackle the vulnerable external position, widening current account deficit, overvalued exchange rate and low international reserves, as well as diminishing tax revenues, policy inconsistencies, financial sector instability and the protracted liquidity crunch.
While authorities fiddle, the economy is burning, with an unsustainably high external debt and massive de-industrialisation and informalisation. The average GDP growth rate of 7,5% during the economic rebound of 2009-12 is nose-diving largely due to liquidity problems, low capacity utilisation and falling production, outdated technologies, structural bottlenecks, corruption and a volatile business climate.
As part of the solution, government must adopt a contractionary fiscal policy stance, even if the multi-currency regime limits its use of monetary policy instruments. It must embrace reforms and balance its primary fiscal budget to send a strong signal it intends to live within its means.
Besides, it must sort out its relations with multilateral lenders and restore confidence in the economy to boost investment and ensure sustainable recovery.