Chinamasa cuts too little too late

FACED with a deepening fiscal crisis, Finance minister Patrick Chinamasa yesterday announced during his mid-term fiscal policy review statement in parliament that he will undertake a series of drastic cost-cutting measures to rationalise government’s unsustainable wage bill now gobbling an alarming 96,8% of total revenues.

Zimbabwe Independent Comment

The cost-containment interventions will include slashing salaries and allowances of cabinet ministers and other senior government officials, reducing civil servants’ pay and benefits, reviewing conditions of service including cars, fuel and airtime, taxing allowances, closing embassies and revisiting diplomatic staff’s benefits, limiting foreign travel, foregoing bonuses and revising public enterprises, stateentities and local authorities’ remuneration framework, among other things.

Government will also embark on massive retrenchment to downsize the bloated civil service from 298 000 to 273 000 employees to cut the wage bill to 75% of revenues by 2017.

Chinamasa will in the 2017 national budget propose further austerity measures to reduce employment costs to US$232 million per month by next June and US$219 million by end of next year. This is expected to save US$155 million for development programmes.

Government aims to reduce wages, as well as related transfers to grant-aided institutions to around 60% of revenue by 2019. This will increase fiscal space to support service delivery and infrastructural spending. Chinamasa said wage bill rationalisation actions so far yielded monthly savings of around US$6,5 million since January. Since July, they have saved an additional US$6,9 million monthly. Cumulative financial savings realised by the end of last month amounted to US$64,4 million. This will culminate in overall monthly savings of US$13,4 million against targeted monthly savings of US$14,7 million, translating to projected annual savings of around US$118 million, he added.

Cabinet, the minister said, has already approved measures to reduce the baseline public employment costs by around US$118 million by end of year.

Even then, as Chinamasa admitted, the monthly wage bill will still remain high at US$245 million per month, which is 76% of revenue. At this level employment costs, cash flow requirements for remuneration and commitments to meet Treasury Bill maturities will continue to exceed revenue inflows. This will leave no fiscal space for capital expenditure and development as well as critical debt repayments.

In the meantime, government revenues continue to fall; collections amounted to US$1,7 billion in the first half of the year against a target of US$1,9 billion. End-of-year revenues are expected to be US$3,8 billion, not US$3,9 billion as initially envisaged. The budget overrun by June was US$308 million, scaling up US$2,32 billion.

“Failure to contain the budget deficit will worsen the situation to a year-end level of over US$1 billion,” Chinamasa warned, recalling government had forecast a US$150 million budget deficit for 2016.“The budget deficit is being financed by way of borrowing primarily through issuance of Treasury Bills. This is crowding out credit to the private sector, thereby stifling new domestic investment and growth.”

The chickens have come home to roost. What the government is doing is too little too late.