By Melody Chikono
FINANCE minister Patrick Chinamasa yesterday announced bold and far-reaching economic reforms, while spelling out a series of austerity measures which he hopes will spur sustainable economic recovery and growth.
Presenting a US$5 billion 2018 budget statement in parliament under the “new economic order” rubric, Chinamasa said the economy was struggling as shown by low production and export levels, as well as high levels of unemployment, and a continuing deterioration in macro-economic stability.
The minister then came up with a series of reforms and austerity measures which he said could lead to a 4,5% growth in 2018. He said government will adopt a major policy shift to re-engage with the international community, international financial institutions and attract investors.
Retrogressive laws like the indigenisation policy will be overhauled to improve the business climate. The ease of doing business and Special Economic Zones approach will be improved, among other aspects.
“The new economic order, therefore, gears towards restoring discipline,fostering a stronger culture of implementation, supported by political will in dealing with the following: Correcting the fiscal imbalances and financial sector vulnerabilities; public enterprises and local authorities reform; improving the unconducive investment environment; dealing with corruption in the economy; re-engagement with the international community; stimulating production, and exporting; as well as creation of jobs,” he said.
“The overriding aspiration is upliftment of social-economic conditions of the populace, through making short-term sacrifices that allow the budget to play its rightful role in addressing production, job creation, and poverty reduction.
“Central is addressing the high prevalence of unemployment, against the background of vulnerabilities adversely affecting the sustainability of production, with the major one being the mounting demand pressures for foreign exchange.
“We must be bold to set annual targets for creation of decent jobs and strive to spread these across the various sectors of the economy. This requires that government collectively acknowledges the risks and costs brought about by directing a disproportionate share of budget expenditures towards salaries, allowances and other consumptive expenditures, such as condition of service vehicles and travel, among others.
“Accordingly, the budget theme “Towards a New Economic Order” is drawn from this recognition and acknowledgement.
At the heart of the economy’s fundamental economic challenges is an unsustainable budget deficit, whose financing through issuance of Treasury Bills and recourse to the overdraft with the Reserve Bank is untenable. This is also at the core of factors driving the demand for foreign exchange, as well as creation of excess money supply, which is largely in the form of electronic RTGS and mobile money balances. These money balances are accessible through RTGS transactions, card swipes, as well as such mobile platforms as ecocash, one-money and tele-cash. Physical cash is a small proportion of the economy’s overall financial sector liquidity.”
Chinamasa added: “Money creation, through domestic money market instruments which do not match with available foreign currency, only serves to weaken the value of the same instruments, translating into rapid build-up in inflationary pressures, to the detriment of financial and macro-economic stability.
“This has seen growing mismatches between electronic money balances and the stock of real foreign exchange balances, as reflected by cash holdings and nostro balances of banks.
The minister also promised to deal with corruption and indiscipline in the economy. He came up with investor-friendly policies, re-engaging with the world and improving the ease of doing business, while introducing austerity measures.
He said the government would maintain a freeze on recruitments, abolish youth officer posts under the Ministry of Youth, Indigenisation and Empowerment and cut the size of government executives as a way of lowering the wage bill.
The retirement of public servants will entail payment of a severance package estimated at US$8,7 million.
Chinamasa said government’s decision would lower the wage bill to 65% of expenditure from around 85% in the prior year and will see annual saving of US$20 million. He added government was working on progressive reduction of the share of employment costs in the budget to initially 70% in 2018, 65% in 2019, and below 60% of total revenue by 2020 to create fiscal space. An increase of the capital budget thresholds from the current 11% to 15% in 2018 and 25% by 2020 is expected.
Chinamasa said the freeze on recruitment would be maintained across the board, save for critical posts, as determined by Treasury in conjunction with service commissions.
“In this regard, from January 2018 government will, through the service commissions, retire staff above the age of 65. Staff that retire will be assisted with access to capital, to facilitate their meaningful contribution towards economic development, including taking advantage of allocated land, for those who are beneficiaries of the land reform programme,” he said.
State enterprises, which have remained a drain on the fiscus owing to inefficiencies, will also be reformed. He said state enterprise contribution had come down from 60% at their peak to current levels of about 2%.
“Their inefficient operations are a drain on the budget, over and above serving to worsen the high cost of doing business in the economy,” he said. “Last year’s financial audits indicate that 38 out of 93 public enterprises incurred a combined US$270 million loss, as a result of weak corporate governance practices and ineffective control mechanisms.”
Government will also deal with vehicles issued to officials, fuel, foreign trips and business travel, the number of embassies and size of diplomatic missions and sub-contracting, among many other things. He said the current fiscal crisis was unsustainable.
“The increasing mismatch between revenues and expenditures will necessitate further borrowing of US$940 million during the last quarter of 2017,” said Chinamasa.
Former Reserve Bank of Zimbabwe governor Gideon Gono said the budget was progressive.
“The budget is comprehensive under the circumstances, practical, bold, courageous, forward looking, investment stimulating, confidence boosting and painfully sweet,” Gono said. “Arguably, one of the best budget statements in years, if only it can be translated into action.”
However, former Finance minister Tendai Biti said: “Stripped of all progressive sound bites, the budget does not represent a marked departure from the contested past of fiscal deficits, fiscal indiscipline, stagnation, low productive levels, unfinanced social services and toxic policy measures.”
- US$5,1 billion budget;
- Government scraps indigenisation law;
- GDP growth above 4,5 % in 2018;
- US$4,3bn collected in tax revenue;
- US$$4,5bn in current expenditure;
- US$5,533bn overall revenues for the public;
- 3 700 youth posts abolished;
- US$5,743bn expenditure framework inclusive of retention funds;
- Capital expenditure US$$1,2bn;
- US$ $672bn fiscal deficit;
- US$132,2 million elections support;
- Technically insolvent parastatals to be closed, others to be commercialised;
- Retire civil servants over 65 years;
- Economic reforms and austerity;
- US$1,7bn budget overrun;
- Central bank issued US$1,5bn worth of TBs and bonds;
- Another US$900m needed to finance the last quarter of 2017; and
- More than US$300m in RTGS used to finance budget deficit.