Zimbabwe government fails to curb profligacy

bond-notes1.jpg

The bond notes were introduced last year to help ease cash shortages.

THE Reserve Bank of Zimbabwe’s (RBZ) first-quarter report for 2018 has shown that despite the change of guard in leadership, government is yet to desist from its discredited habits of fiscal indiscipline and unrestrained spending.

By Kudzai Kuwaza

According to the report, 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.

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 which have had a crowding-out effect on the private sector.

This exacerbates the deepening economic crisis characterised by a debilitating liquidity crisis, a severe cash shortage, company closures, massive job losses and a widening trade deficit which reached almost US$1 billion in the first quarter of 2018, according to data from the central bank.

The crisis is aggravated by the country’s import cover which stands at a mere 15 days — a reflection of the desperate state of the economy. Comparatively, Botswana has 15 months’ import cover.

President Emmerson Mnangagwa came into power in November last year on the back of a military coup amid hopes that the leadership transition will bring about economic revival.
The fiscal situation has however not improved much, the RBZ report shows.

The grim statistics are a far cry from government’s repeated mantra that the economy is on the mend. The Mnangagwa administration, which has adopted the slogan “Zimbabwe is open for business”, has been at pains to report progress, but the characteristics of the economic crisis prior to Mnangagwa’s presidency persist.

Business consultant Simon Kayereka said the fiscal deficit will further deplete funding for infrastructure development among other critical national needs.

“These figures point to fiscal indiscipline where spending by government exceeds revenue,” Kayereka said.

“What this simply means is that there is very little left for infrastructural development and other social services like health and education.”

He added that the unrestrained spending by government will crowd out private sector borrowing which is critical for expansion projects by industry.

“Even though the number of ministries have been streamlined, the structure of financial indiscipline remains,” Kayereka noted.

Finance minister Patrick Chinamasa warned in May this year that the civil servants 15% salary hikes will increase the wage bill to 120% from its current levels, further widening the country’s fiscal deficit.

Chinamasa, who was speaking at the Women’s Conversation on Legislation with Mnangagwa, said the increases could make the wage bill grow from 90% of government revenue to 120%.

“Another problem causing cash shortages is the fact that we have a huge fiscal deficit. If there are any civil servants here, I want them to hear this clearly. Of every US$100 that we receive, 90% is going to wages. And this situation is going to be made worse by the recent salary or allowances adjustments with the nurses, doctors and teachers and the rest of the civil service. I may not be surprised to find out that will be not 90%, but 120%,” he said.

This admission by Chinamasa is in stark contrast to his declaration on reducing the wage bill when he presented the 2018 national budget late last year. He promised to trim the wage bill to 70% this year before further reducing it to 65% in 2019. Chinamasa projected an annual saving of US$20 million.

According to the Treasury boss, this year will see a budget deficit of US$672 million and, with elections nearing, the country’s expenditure is expected to balloon further.
The failure by government to rein in spending, among other shortcomings, probably explains why business confidence also slumped during the period under review.

The Confederation of Zimbabwe Industries (CZI) in May launched its composite Business Confidence Index (BCI) that showed that business confidence in Mnangagwa’s administration has dipped.

CZI president Sifelani Jabangwe said the composite BCI for the first quarter of 2018 stood at minus 14,4 for quarter-on-quarter basis and 20,9 year-on-year.

“This indicates lack of confidence and pessimism of business leaders for quarter-on-quarter business condition, but optimism of business leaders regarding the year-on-year economic situation,” he said.

Economist and Buy Zimbabwe executive Oswell Binha said the lack of financial discipline remains the country’s major obstacle to economic recovery.

“One of the biggest problems we have had in Zimbabwe, which is the elephant in the living room, is government spending,” Binha said.

“Any government deficit is undesirable. We actually had a surplus between 2009 and 2013 (during the period of the inclusive government) and this is the benchmark we should aspire to.”

He said it is unsustainable for government to spend 30% of gross domestic product, adding that profligate spending is likely to remain uncurbed with elections on July 30.

One thought on “Zimbabwe government fails to curb profligacy”

  1. Uncle Sam says:

    You lie, government is much able to balance its population, if you consider VAT what about diamonds, what about gold. You want to demoralize the sureness of the majority on saying employment is consuming much than it should not be.

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