FINANCE minister Patrick Chinamasa yesterday delivered his mid-term fiscal policy statement, painting a dreary picture of an economy choked by dwindling revenues amid runaway expenditure that has resulted in a budget overrun in the first half of the year.
By Taurai Mangudhla
Chinamasa projected the economy would now grow by 1,2% from an initial projection of 2,7% owing to strong headwinds arising from the impact of the drought on agriculture, depressed international commodity prices, limited domestic and foreign direct investment, a growing fiscal deficit as well as the resultant overall fall in incomes and weakening of domestic aggregate demand.
Chinamasa said government’s over-expenditure in the first half of 2016 amounted to US$308 million mainly as a result of employment costs which gobbled up 96,8% of the cash budget, leaving only US3 cents per dollar for capital and social spending.
Revenue performance stood at US$1 692 billion during the first half of the year while total expenditure was US$2 316 billion, against a target of US$2,07 billion, giving over-expenditure of US$308,4 million.
“The financial outlay for January to June of US$1 638 billion on employment costs is inclusive of outstanding 2015 13th cheque payments of US$162,1 million, as well as financial savings realised from the implementation of some of the wage bill rationalisation measures already approved by Cabinet,” said Chinamasa.
During the period January to June 2016, revenue under-performance against over-expenditure resulted in a cumulative budget deficit of about US$623,2 million, far above the full-year target of US$150 million. According to Chinamasa, the budget deficit is being financed through the issuance of Treasury Bills by the Reserve Bank of Zimbabwe on behalf of government.
“Failure to contain the budget deficit in the shortest possible time will worsen the deficit to an estimated year-end level of over US$1 billion,” said Chinamasa.
By Chinamasa’s own admission, budget overruns mean the country has no capacity to service domestic debt which has also seen roll-overs which are posing financial risks on domestic debt instrument holders and domestic financial institutions.
“This situation, unfortunately, is not tenable and is undermining the stability of the financial sector and overall economy,” Chinamasa warned. “Further to this, government borrowing is also crowding out lending to the private sector and, hence, stifling new domestic investment and growth.”
Business is already suffering with thousands of companies retrenching workers despite government having promised to create 2,2 million jobs between 2013 and 2015.
Market capitalisation on the Zimbabwe Stock Exchange (ZSE) slid 34% in the first six months of 2016, a reflection of the contraction of the economy. In addition, subdued trading, disinvestment by mainly foreign investors, and weak local investment, also led to value erosion on the local bourse.
“Foreign investor participation on the Stock Exchange declined, as reflected by an increase in net outflows of US$1,1 million and US$15,4 million in the first quarter of 2015 and that of 2016, respectively.
Zimbabwe’s current account deficit, which stood at US$2,5 billion in the first half of the year, reflects declining exports, low foreign direct investment flows, and limited offshore lines of credit, against high current account outflows, primarily in the form of imports.
Diaspora remittances, a major source of liquidity in the country, declined by 15% in the first half of the year largely as a result of rapid currency depreciation in source markets against the American unit.
Former finance minister Tendai Biti described Chinamasa’s statement as a disastrous balance sheet of failure, dishonesty and mendacity, adding the treasury chief’s admission that the year-end deficit will hit US$1 billion and see the government failing to service the wage bill is a serious indictment on President Robert Mugabe’s administration.
“Faced with humongous challenges, they needed to take decisive action. They failed miserably. That they just scratched the surface by cutting salaries and closing a few embassies is an embarrassing response to a disastrous situation,” Biti said.
“You cannot move the deck when the Titanic is sinking which is exactly what they are doing. The government cannot adopt a lackadaisical, indifferent, business-as-usual approach when Zimbabwe is burning. What the country needs is bold, decisive leadership on the economy. They may as well kiss goodbye to any belief that anyone is going to support them, even the British.”