Chinamasa faces a tough task

FINANCE minister Patrick Chinamasa faces a herculean task to continue funding government’s unsustainable recurrent expenditure when he pronounces his mid-term fiscal policy review statement soon due to the shrinking fiscal space against growing financial obligations.

By Fidelity Mhlanga

Finance Minister Patrick Chinamasa
Finance Minister Patrick Chinamasa

Fears are also abound that the introduction of bond notes will fuel concerns over the country’s business environment which has been in recent years marred by disastrous policies such as the fast-track land reform programme and more recently the indigenisation policy, would make the sitution worse.

Already, government is struggling to timeously pay its 550 000-strong civil service, which gobbles more than US$200 million per month, due to poor revenue inflows, amid indications that this year’s projected growth rate of 2,7% will not be met.

The mid-year fiscal and monetary policy reviews come at a time the economy continues to falter as many companies close shop with statistics showing that nearly 150 companies folded in the second quarter of 2016.

Job losses and company closures have been profoundly felt by the taxman who has failed to generate adequate revenue as evidenced by a 9% slump in collection in the first half of 2016.

Due to increased informalisation of the economy, the tax collector is now tasked with formulating and implementing feasible strategies to tax the informal sector.

Former Economic Planning minister and Economist Tapiwa Mashakada said Chinamasa must repeal the toxic indeginisation legislation which has dragged down Foreign Direct Investment inflows from US$545 million in 2014 to US$421 million last year, representing a 23% drop.

This pales in comparison to other countries in the region with Mozambique receiving US$3,7 billion in FDI, Zambia (US$1,7 billion) and South Africa (US$1,8 billion) which is more than three times Zimbabwe’s paltry inflows.

“The only confidence measure he can announce is the repeal of the indigenisation act in order to attract foreign direct investment. He has no room to manouvre on taxation just as he seems powerless to reduce public expenditure or curb corruption,” Mashakada said.

He said the mid-term fiscal review is going to be another dump squib because there is no fiscal space to accommodate new mid-term budget targets.

“Government revenues are at their lowest level since 2013 and the debt burden is taking its toll on the economy. Zimbabwe is going through a fiscal crisis triggered by unbridled expenditures. The 550 000-strong civil service is gobbling US$200 million per month. The accumulated budget deficit is US$5 billion since 2013. The economy is not growing, hence he is in serious trouble,” he said.

In June, Vice-President Emmerson Mnangagwa admitted the 2016 budget targets were difficult to attain due to El Nino-induced drought and the resultant costs of importing grain, as well as low commodity prices, which are taking a toll on the economy.

Chinamasa is currently making frantic efforts to ensure Zimbabwe repays US$1,8 billion in arrears to the International Monetary Fund, the World Bank and the African Development Bank with a view this might unlock new funding to support the economy and government’s budgetary needs.

Currently saddled with a debt overhang of US$10,8 billion, Zimbabwe’s debt arrears amount to US$5,6 billion split between multilateral creditors (US$2,2 billion), the Paris Club, an informal grouping of bilateral creditor nations (US$2,7 billion), and non-Paris Club creditors (US$700 million).

The Treasury boss is expected to implement recommendations IMF to cut the wage bill by 40%.

“Reengagement exercise with International Financial Institutions is now hanging by the thread due to the volatile and toxic political environment,” Mashakada said.

The country has been failing to access external funding to finance its operations for 15 years, largely due to debt arrears.

Already Zimbabweans are indignant over the promulgation of Statutory Instrument 64 of 2016 which put stringent measures on the importation of products, a move which resulted in the torching of a Zimbabwe Revenue Authority (Zimra) warehouse in Beitbridge.

With unemployment hovering at 90 % and many Zimbabweans living in poverty, the Zanu PF government is struggling to create 2,2 million jobs promised in 2013 and has no clue on solutions.

Considering that temperatures are already simmering following the statutory instrument, Zimbabweans will wait to see whether Chinamasa will introduce measures to manage the situation .

Another Economist Prosper Chitambara said Zimbabweans should not expect much from the review, especially given that revenue inflows have been grossly underperforming leaving Chinamasa stuck between a rock and a hard place.
“It was a very difficult and unenviable task for the minister in light of the dwindling productive base. This implies the limited degrees of fiscal freedom. Fiscal policy alone is not effective and enough. Fiscal reforms should be supported by bold political and institutional reforms to deal with the high levels of economic and financial bottlenecks in the economy,” Chitambara said.

Economist Eddie Cross said whatever Chinamasa does is going to be undermined by the current political crisis, adding he has no solution because the crisis is embodied by his boss, President Robert Mugabe.

“I cannot see what he can do — the fiscal gap is 26% of the budget, too massive to bridge from revenue measures. He has to get the economy growing — consider this in your analysis,” said Cross who is also an MDC-T legislator.