Mnangagwa’s govt fails first fiscal test

ZIMBABWE’S fiscal details for the first quarter of 2018 show government had cumulative revenue collections of about US$1,2 billion, against total expenditure outlays of US$1,4 billion, resulting in a budget deficit of US$225,4 million.

Zimind Comment

According to the Reserve Bank of Zimbabwe’s latest quarterly report, the total government revenue inflows during the quarter under review were 8% above the target of US$1,1 billion. The economy remained heavily dependent on value-added tax (VAT) and taxes on income and profits, which contributed 35% and 34%, to total revenue, respectively, during the quarter. Government expenditure surpassed the target of US$1,1 billion by US$273,3 million.

Employment costs constituted the largest proportion of total expenditure, constituting 60,4%, followed by capital expenditure and net lending at 20,4%; operations and maintenance 15,8%, while interest payments stood at 3,4%. The deficit was largely financed through domestic sources, particularly the issuance of Treasury Bills.

The large budget deficit confirms that government is still living beyond its means and this can only spell doom. The International Monetary Fund (IMF) has repeatedly encouraged Zimbabwe to introduce a raft of measures to reduce the budget deficit which is crippling the country. Among the measures proposed to rein in runaway expenditure is urgent fiscal consolidation. Public sector employment costs remain at an unsustainable level, constraining social and infrastructure spending. It is critical for the government to contain broader, adverse spillovers from the fiscal imbalances.

Economic experts have also underscored the need to restore the credibility of the currency regime and safeguard the financial sector. While private sector credit growth remains subdued, bank asset concentration on non-liquid central bank deposits and Treasury Bills has increased financial sector fragility. The IMF has encouraged a proactive approach to managing these risks, by bolstering the regulatory and supervisory framework. Coupled with that, the IMF also stressed the urgency of structural reforms and the need to create a conducive environment for private sector-led growth.

Though President Emmerson Mnangagwa’s efforts to improve the business climate are commendable, sweeping reforms to create an investor-friendly environment through dispensing with archaic policies and legislation that spooks investors are key. Fighting corruption is also crucial towards returning Zimbabwe’s fragile economy to a firm recovery and growth trajectory.

There has been a refreshing approach to the policy of re-engagement with the international community, key toward unlocking external financing, which is key in attracting investment and resolving the debt overhang. But the envisaged changes can only succeed in an environment where holistic structural reforms are embraced.

In the broader scheme of things, fiscal indiscipline remains a major impediment. With limited access to foreign inflows, Zimbabwe’s fiscal imbalances have become unsustainable, and are being financed by rising domestic borrowing. This is potentially disastrous. The problems persisting in the economy, particularly the huge budget deficit, show Mnangagwa’s government has failed its first fiscal test to live within its means and break with the past.

4 thoughts on “Mnangagwa’s govt fails first fiscal test”

  1. chirisa says:

    So says Briefcase economists hapana nyika inoita recover overnight
    the Great Depresession took decades to recover
    let ED vagadzirise nyika
    Foreign Direct Investment inflows are on the increase saka zvese zviri mugwara

    1. Sam says:

      Heya, ko vaMugabe vanga vachiedza kugadzirisa zvinhu in the midst of the very corrupt younger generation Politicians in his party and the very corrupt younger generation citizenry, makago pembera kuti vabisiwe muchiti vatora nguva yakareba kugadzirisa wani? Handiyo hypocrisy here? Wose munhu wongoti $16/15bln, zvogozodii, kunyange ikawanika inongo verera pasina chabuda. This is the time to give Diasporans who have seen the light to come and sort out things and we know exactly where to start from. Zva Sekuru Gudo neMuzukuru Tsuro zvaramba ipayi vakaona hutongi hwakanaka hwemunedzimwe nyika.

  2. Norman Kativhu says:

    there isn’t big deal with this deficit, vanhu vemuzim we don’t know what we want truly or we don’t know how to get to where we want, in the last six must there were outcry for civil servants outcry and when the government said the demands were to high people went into the street saying nurses have been fired for making demands, the next thing is to cut wage bill means job loses to civil servant so i think for now focus should be on expanding the cake not necessarily cutting the wage bill as the cost being incurred can not be diverted anyhow, one way to expand the cake is through FDI inflow which has currently been halted by forth coming election credibility

    let work with facts not opinion

  3. tinei ganyani says:

    Ndirikuonawo kuti its easy to destro but difficult to build. zvinotoda nguva kuti zvinhu zvigadzirike saka vaMnangagwa for now is the rightful candidate kugadzirisa pakafira nyaya because ndivo vanonyatso kuziva paifira tsoro. let support our president and government kuti economy yedu igadziriswe vana veZimbabwe. lets use our failures as a bridge for success

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