AS widely expected, Finance minister Patrick Chinamasa yesterday presented a standstill US$4,1 billion for fiscal year 2015, in what amounted to an admission that the near-bankrupt government has no fiscal space to manoeuvre and the economy is in deep crisis.
THE ZIMBABWE INDEPENDENT EDITORIAL
In fact, it is now in recession and the attendant deflation, reflecting low aggregate demand and a decrease in spending, is set to deteriorate.
Chinamasa admitted the 2015 budget is standstill. Of the running budget, US$3,32 billion — which represents 81% of total expenditures — will be on employment costs, leaving a balance of US$798 million for operations, debt service and capital development programmes.
Based on the 2015 GDP growth projection of 3,2%, revenues of US$4,1 billion are anticipated. This translates into about 28,1% of nominal GDP of US$14,594 billion. Expenditures of US$4,115 billion are accordingly targeted, resulting in a small deficit of US$15 million.
Yet the elephant in the room is this: Recurrent expenditures will continue to dominate overall outlays accounting for 92% of total costs, leaving about 8% for capital development programmes.
The proposed allocations for the capital budget are US$341 million, while that for operations and maintenance is US$384 million. This exposes a deep fiscal crisis in Treasury. Government is inevitably sinking into dire straits as it will soon have no money to pay civil servants, let alone fund service delivery if this trend continues.
Chinamasa has been promising rationalisation of the civil service and the wage bill, but lack of political will and courage is delaying or stalling the process.
The economy is in deep trouble as continues to be dragged down by a liquidity crunch, low production and poor aggregate demand, non-performing loans, antiquated plant and machinery and other numerous problems.
Between 2011 and 2014 4 610 companies closed down, resulting in 55 443 job losses. More companies are set to close shop, particularly during the festive season. This is a dreadful situation. Company closures and redundancies have resultantly fuelled further dwindling of government revenues as the tax base continues to shrink.
The current account balance is projected to deteriorate from a deficit of US$3,351 billion in 2014 to a deficit of US$3,431 billion in 2015 due to huge trade deficits, low transfers and incomes.
International reserves remain under one month import cover, while the current account deficit constitutes about 23,9% of GDP. Foreign investment, which has a significant and positive impact on market liquidity, remains badly low compared to neighbouring countries due to high political and country risk.
For instance, in the first 10 months of 2014, the country received a paltry foreign direct investment amounting to US$146,6 million compared to US$311,3 million during the same period in 2013.
Why does a country with such vast natural resources and human capital attract so little FDI? Last year, Africa received over US$82 billion in FDI, with our neighbours Mozambique getting over US$8 billion or 10% of FDI flows to Africa. Chinamasa did not help the situation as he failed to clarify policy issues yesterday, particularly indigenisation.
Zimbabwe seriously needs a change in attitude and perception. It must purposefully re-engage. Belligerent populist rhetoric and damaging myopic policies by inept leaders won’t help anything.