AS the government continues living beyond its means—to the detriment of national recovery from catastrophic decay — the only significant growth in the economy is that of the budget deficit.
Today, we report in these pages that Zimbabwe’s domestic credit grew 38,5% on an annualised basis to US$10,5 billion in February largely driven by an increase in lending to government. In sharp contrast, credit to the private sector increased marginally by 6,1% from US$3,5 billion to US$3,6 billion in February 2018, amplifying the crowding out of the private sector. Of course officials deny this
Budget expenditures in the period under review totalled US$1,4 billion against the planned US$1,1 billion, resulting in expenditure overruns of US$273,2 million. This is a marked deterioration from the previous year. In recent months, there have been attempts by senior officials to propagate a misleading upbeat impression of an economy which is fast recovering. The brutal reality is that the country is in a deep fiscal crisis.
The government’s reliance on the banking sector through Treasury Bills to finance the budget deficit has become a serious cause for concern and a threat to national stability. There is no better definition of fiscal indiscipline and economic mismanagement.
In the corridors of power, smug officials still peddle the fallacy that Zimbabwe is not printing money. The truth, of course, is that Treasury Bills — issued at worrying quantities — are a latter-day Zim dollar being printed through the back door. The government’s deficit financing is crowding out the private sector. This has the effect of throttling the economy’s productive capacity.
In the face of limited external lines of credit — but also as a result of imprudent economic stewardship — the government has had to rely on unsustainable methods of financing the ever-widening deficit. But the ramifications have been dire. A new report from Treasury lays bare the perilous state of government finances. A total of US$47,2 million was spent entirely on interest related to domestic debt. Eventually, the government will be tempted to resort to creating Real-Time Settlement System balances to meet its obligations — and this is undesirable.
What has heightened the impact of the crowding out effect is that local banks have shown a liking for government-backed debt instruments in favour of lending to the private sector which is viewed as high risk. While Treasury Bills are viewed by the authorities as an instrument of choice in financing the fiscal deficit, the paper is fraught with all manner of imponderables. The government has so far managed to pay up on maturity, but chances of default and rollovers are growing as the stock of obligations continues growing.
The ever-growing fiscal crisis shows that the government continues on a spending spree even in the face of such calamitous finances. The high-level appetite for luxury cars and foreign travel has not abated, despite claims to the contrary. As a direct consequence of fiscal indiscipline and mismanagement, public funds are wasted and looted, while service delivery suffers. To avert a catastrophic fiscal collapse, the government must now show prudence by living within its means, taming the runaway spending and exercising better management of public funds.