HomeBusiness Digest2015 national budget unlikely to inject new stimulus for growth

2015 national budget unlikely to inject new stimulus for growth

REVELATIONS by Finance minister Patrick Chinamasa that 92,5% of government’s revenue is recurrent expenditure, with wages gobbling 81,5% of income, is yet further confirmation the Zimbabwean economy remains in dire straits with very little expected to improve after the presentation of the 2015 national budget this month.

Kudzai Kuwaza

In fact Chinamasa has already warned the distressed nation hoping for any good news that it must not hold its collective breath for there is not much to expect from the 2015 national budget he will present on November 27.

Maybe it is just as well, since in any case the unveiling of the national budget has become a ritual in which the gulf between the nation’s aspirations and its means is laid bare.

In his presentation to MPs at a pre-budget seminar in Victoria Falls last week, Chinamasa warned of a recurring theme: expenditure continued to crowd out the country’s capital development needs.

“… As we craft the 2015 national budget, it is important to note the limited fiscal space and the skewdness of expenditures in favour of recurrent programmes,” Chinamasa said.

“Furthermore in view of the liquidity challenges in the economy, reliance on domestic borrowing will be limited.”

The country’s continued bloated recurrent expenditure, driven by political expediency, flies in the face of perennial calls by the International Monetary Fund (IMF) for government to drastically reduce the civil service wage bill, a potential sticking point as the IMF and the government enter yet another phase of the Staff Monitoring Programme (SMP).

Chinamasa’s sincerity in assurances made in a “Letter of Intent” to the IMF earlier this year that he would work towards reducing the wage bill with measures such as freezing employment of civil servants will come under severe scrutiny.

The SMP is an informal arrangement between a country’s government and the IMF to monitor the implementation of the government’s economic programmes.

The recurrent expenditure deficit could be worsened by a restive workforce demanding an unaffordable increase in wages triggered by a paralysing strike by junior doctors pressing for higher salaries and better conditions of service. The strike is in its third week.

Throw in the vicious succession fights that currently preoccupy Zanu PF — ahead of its elective congress on December 2-7 — at the expense of an economy teetering on the brink, and you have all the ingredients for further turmoil as indicated by Brussels think-tank the International Crisis Group (ICG).

The think-tank says a year after last year’s July 31 general elections, Zimbabwe faces multiple social and economic problems, spawned by endemic governance failures compounded by a debilitating ruling party succession crisis.

“Both Zanu PF and the Movement for Democratic Change — Tsvangirai (MDC-T) are embroiled in major internal power struggles that distracts from addressing the corrosion of the social and economic fabric,” says the report titled Zimbabwe: Waiting for the Future.

In the words of none other than Zanu PF spokesman Rugare Gumbo, the factional fights were causing “unprecedented levels of tension within the party with the result that our focus has shifted from our core business as the party of government”.

Gumbo said instead of fighting for posts, party officials should refocus their energy on reviving the economy and rescue millions of Zimbabweans who were struggling to make ends meet due to the depressed economic environment.

Chinamasa projected a 3,2% growth in 2015, underpinned by major contributions from agriculture which is projected to grow by 3,4%, mining (3,1%) and tourism (4,1%). But employment costs could soar further should government thrash out a pay deal with striking junior doctors demanding their salaries rise from US$282 to US$1 200.

Government has often been accused of living beyond its means by, among others, splurging on costly vehicles for minister, MPs, overseas trips and service chiefs credited with playing a key role in Zanu PF’s disputed poll triumph last year.

In the meantime, infrastructure continues to deteriorate as government has little left for such crucial projects.

According to economist Godfrey Kanyenze, “The economy has basically been neglected by the politics. Recurrent expenditure at 92% is not a recipe for development.”

He said the numerous demands on the ever dwindling fiscus has reduced Chinamasa to a mere “an accounting clerk”.

Government’s employment costs continue to wreak havoc on revenue, increasing from 68% last year to 76% this year before escalating to the current 81,5%.
Kanyenze predicted there would be “more of the same” in 2015 as Chinamasa is unable to arrest the trend.

He suggested a social contract that consists of government, labour and business to turn the economy from a “vicious cycle to a virtuous cycle” centered on productivity.

Chinamasa said interim revenue collections as at October 29 2014 indicate underperformance with collections amounting to US$289,4 millionagainst a target of US$ 336 million.

This is partly due to the current wave of downsizing, retrenchments and company closures and downsizing.

The National Social Security Authority (Nssa) estimates that 10 companies close every month while statistics from the Retrenchment Board show that more than 5 600 workers have been retrenched so far this year, with more companies awaiting approval from the Board to lay off workers.

Zimbabwe Congress of Trade Unions secretary-general Japhet Moyo revealed that 52 companies had laid off workers this year, reducing fiscal space for the government.

Moyo does not expect the 2015 budget to make any meaningful impact on the economy given the depressed revenues and the unabated closure of companies and job losses.

“This (reduced revenues) has become the norm rather than the beginning of a recovery process,” Moyo said. “Looking at what is happening, I don’t expect anything helpful from the budget.”

Moyo said the depressed economic environment made the gathering of parliamentarians at pre-budget seminars more of a holiday as there is very little they could do to help reverse the economic decline.

Former Economic Planning minister Tapiwa Mashakada said given the parlous state of the government’s coffers, the presentation of the 2015 budget will be “a routine exercise.”

“It (budget) is a religious exercise because the fundamentals are greatly biased against the budget,” he said.

Mashakada said there is need for foreign direct investment as well as financial support from multilateral institutions such as the International Monetary Fund to rescue the country from its financial malaise. Failure to add significant revenue from diamonds to the fiscus has had a negative impact on the government’s coffers, he said.

Despite once touting diamond as “sanctions busting” revenue from shadowy diamond mining activities has been far below expectations amid persistent concerns about opacity, leakages and the involvement of the country’s security sector.

Mashakada added that the moribund economy would not improve as long as the infighting in Zanu PF continued, leaving the economy on autopilot as party members tear at each other ahead of the elective congress.

It might well now be a cliché, but Chinamasa faces mission impossible in crafting a budget that can help steer the economy from decline to stability, recovery and ultimately sustainable growth.

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