HomeAnalysisDisproportionate austerity measures in Zim — part II

Disproportionate austerity measures in Zim — part II

The previous installment examined the draconian revenue austerity measures that have been invoked by the fiscal authorities, which they believe will act as a quick-win strategy meant to restore macro-economic stability.

Paddington Masamha,Financial analyst

Evidence on the ground, however, shows that the new reform agenda is exacerbating our economic conundrums. Regardless of innumerable calls to re-consider the new policy stance by various economic stakeholders, the fiscal authorities are adamant that the new transaction tax system will bring long-run rewards.

The new tax is not only outrageously too excessive, but also counter-productive given that it has ignited price volatility. Notwithstanding such inevitable truths, the Zimbabwean economy is already an overtaxed nation, hence invoking the $0,02 per dollar transactional tax exacerbates an already terrible situation. The measures were lopsided towards the revenue reforms, while the more desirable expenditure-reducing and structural reforms have been put forward as broad and futuristic strategies. The focus of this publication is thus on analysing the expenditure-reducing reforms and the structural reforms being proposed;

Expenditure-reducing reforms

It was anticipated that the expenditure reducing reforms should have been the major focal point of the reform agenda. Instead, both the fiscal roadmap and the transitional stabilisation programme are decorated with futuristic promises that analysts surely believe will be a source of political contestation within the Zimbabwean parliament.

It is common cause that the majority of the reforms need parliamentary approval for them to be actionable. Given that the ruling party has a two thirds parliamentary majority, the much-needed excruciating austerity measures are less likely to be accepted by the parliamentarians. By their very nature, expenditure austerity measures imply a stringent adherence to budgeted expenditure, reduction of certain parliamentary privileges, resizing the bloated public sector, eradicating the ghost workers and redundant government positions among the most universally obligatory strategies.

If one uses historical precedent as the basis of predicting future actions, no meaningful reforms are going to be implemented by the current government. Though the current political leadership is evangelised to be the “New Dispensation”, no tangible evidence exists on the ground to demonstrate that, indeed, a new era and a revolutionary leadership is now in place.

Fundamentally, the need for fiscal consolidation in Zimbabwe is not a new reform agenda, but almost every new fiscal roadmap or plan has had proposals to condense the government expenditures. As usual, the sluggish fiscal consolidation reforms and the lopsided TSP (towards revenue reforms) are a clear testimony that the political front is not fully dedicated to the expenditure austerity reforms.

Given that the new parliament recycled former president Robert Mugabe’s lieutenants, the test of being a revolutionary movement is soon to be proven. For instance, the 2017 budget target of an overall deficit of around 2,33% of Gross Domestic Product proved to be too ambitious a target. Presently, given the new wave of calls by the Zimbabwe Congress of Trade Unions strikes, Zimbabwe Teachers’ Association request for payment of salaries through United States dollars, as well as the potential civil service strikes gathering momentum (triggered by the economic malaise), the desire to achieve fiscal restraint in 2018 will once more prove to be unattainable.

This position of excessively high priority government expenditures is further aggravated by the insatiable appetite for infinite subsidies by the local agricultural sector. The robust aspiration to continue financing command agriculture will further debilitate the desire to attain fiscal restraint.

Typically, political expediency is likely to take precedence over the more desirable economic rationality (attained through fiscal restraint, for example, stopping funding for command agriculture). If government sustains the usual deaf ear regarding stopping the quasi-fiscal activities, the usual unwarranted consumptive borrowings will resurface.
Therefore, mere political promises without statutory commitments (and the political will to reform) is nothing but an unadorned political strategy. Imperatively, the current leadership should take significant steps in the interim period and fully commit to the much necessary austerity reforms. Anything contrary to fiscal restraint will be perceived as political hypocrisy and a failure to live with the new proclaimed revolutionary title. How the current government will deal with implementing significant fiscal austerity measures vis-a-viz the need to retain power is difficult.

Given that the regime has already contaminated one of their major pre-election mantras of “Zimbabwe is Open for Business” by fleecing the majority with a painful transactional tax system, one wonders if a true political and economic revolution is beckoning. If corporations and citizens are taxed to death and their money is eroded by the currency crisis, it stands to be argued that the reformation gospel is doomed to fail unless political sacrifices are instantly implemented, so as to attain some policy direction. Government should not hide behind the veneer of the need for consultations and financial due diligence when it comes to fiscal consolidation whilst when they promulgated the revenue reforms (particularly the 2% per $1 tax), they never consulted any stakeholders.

The expectation that members of the general public and corporations should endure this gruesome tax position only for a season without any concomitant reformation of the fiscal expenditure is unacceptable and a debauched economic strategy. Government should have first tabled their compromises, then at least increase the transaction tax to ranges of between seven cents to 10 cents per transaction, after consultations with corporations and members of the general public. Fiscal authorities are supposed to prioritise the fiscal consolidation as an overdue process. It was expected that the Finance minister Mthuli Ncube should openly declare an interim strategy to deal with specific issues such as the elimination of ghost workers. This was expected to be one of the main interim strategies that Ncube should engage in given that this process has been shelved.

Political leaders have been lethargic regarding these expenditure-reducing measures. For instance, the International Monetary Fund 2017 staff report reveals that government officials were well aware of the existing anomalies within the public service as chronicled by the audit results contained in the Public Service Commission Audit Report.

Structural reforms

Many industrial analysts and economic analysts largely concur that the extent of government involved in the economy is rather on the extreme side. Government policies and activities largely impede private sector activity in various ways as hitherto discussed in previous articles.

For instance, it has largely been noted by lawmakers, financiers, entrepreneurs and agricultural experts that the regulations governing agricultural land need to be re-examined. Private sector commercial farmers have, for a number of years, bemoaned the fact that the Zimbabwean agricultural land is state-owned. As such, there has been a drought of agricultural funding by virtue of the farming sector lacking truly bankable commercial land leases.

The nation has struggled with upholding and safeguarding private property rights and fundamental human rights. The upholding of human and property rights has largely been in limbo given the politically destabilising experiences of the land reform programme, Operation Murambatsvina skirmishes, the pre- and post-election violence and the indigenisation policy, among the most common perpetrators of basic civil rights violations. Given these destabilising developments, the country’s political risk has always been an impediment to economic recovery. Government’s large footprint in the economy must be significantly curtailed. Government should institute structural changes that help deal with the rampant corruption, cronyism and nepotism, which is crippling the economic recovery efforts. There is need to prioritise deterrent measures which eliminate the policy uncertainty and policy inconsistency.

By and large, it is critical for structural reforms to target state parastatals. The loss-making parastatals are a drain on the fiscal budget. The sad thing is that such public promises to restructure these loss-making parastatals are not new. Thus what the general public wishes to see is implementation of the propositions, not just public rhetoric.
Improving the management of parastatals will help reduce their debt overhang, improve corporate governance standards, as well as the public financial management and reporting requirements. However, this process is likely to face political obstacles. The political leadership still desires to have control and be overseeing the operations of some strategic state-owned enterprises hence the inefficiencies associated with the government muscle are less likely going to end.

Zimbabwean structural reforms should mainly target the need to establish a level playing field for both foreign and domestic investors. Structural bottlenecks which impede the fair treatment of these essential fronts will impede economic recovery efforts. Priority areas have mainly been structural reforms of mining leases. The specific reform agenda is supposed to make mining leases public and avoid the case-by-case contract negotiation process. Within the agricultural sector, structural reforms to make land leases fully bankable need to be prioritised.

An imperative structural reform which Zimbabwe has for a number of years been advised to absorb in its policy framework is the need to improve its governance standards. The main concern which needs to be reiterated is the strict adherence to the imperative need to criminalise acts of corruption. Currently, within the public domain, there have been complaints that corruption investigations have mainly targeted the criminal abuse of office by members of alleged G-40 faction only. A holistic approach to criminalisation of public abuse of office should be prioritised.

A robust solution to end Zimbabwean corruption, cronyism and nepotism is the imperative need to publish comprehensive asset declarations of high-level officials. This is an open challenge to the current leadership. Assuming the leadership is truly the “New Dispensation” and “revolutionary” leaders, Zimbabweans are eagerly waiting for you to fulfill one of the greatest good governance practices: which is public officials’ asset declarations. Our fiscal roadmap is an incomplete interim plan, assuming the current leadership only pursues our meagre incomes without any concomitant ethical commitment to structural reforms (i.e. public officials’ asset declarations).

Significantly, Zimbabwe needs to improve and strengthen its government operations’ public transparency and accountability. As a starting point, government needs to appropriately account for how the national debt has accumulated in such a short stint. The public audit of government’s national debt should be done by independent public auditors instead of the “cronies” of the political leaders.

Therefore, structural reforms which target the improvement of public financial management will help promote and bolster public governance. The Zimbabwean government has been plagued with budget credibility issues and ineffectiveness as has been previously discoursed. Imperatively, public procurement office legal framework reforms should be given a precedence. All these structural reforms need urgent implementation so as to promote good governance, budget credibility and government expenditure effectiveness.

The structural reform agenda is long overdue. Zimbabwe cannot pretend to be a repository of meaningful investments if the real fundamentals on the ground signal that we have serious difficulties of “doing business”. Just having a political mantra of being open for business needs to be matched with consistent and coherent fiscal and monetary policies.

Policy clarity, which guarantees the protection of private property rights, the clarity to the land ownership issue, clear positions regarding the indigenisation policy (not merely on isolated sectors), clarity on how foreign investors can repatriate profits, restoration of sanity within the financial sector, restructuring of the public procurement offices, public declaration of assets by public officials, among other bold steps, are all immediate structural reforms which guarantee that we have a well-polished system to restore economic stability.

In a nutshell, the newly-introduced fiscal roadmap and transitional stabilisation programme mainly revealed to us the real fundamental problem causing our suffering. Having openly acknowledged that the problem is our excessive spending, the austerity measures unfortunately fall short in addressing the primary economic conundrum. Fiscal contraction (fiscal consolidation) and structural reforms are the highly-esteemed anchoring lubricants for economic recovery.

Masamha is an independent economic and financial analyst. He holds a Master’s degree in Finance and Investments with the National University of Science and Technology and a Bachelor of Commerce Honours degree in Finance with the same institution. A chartered secretary by profession, the author is a graduate member of the Institute of Chartered Secretaries Association of Zimbabwe. He also holds an executive diploma in Business Leadership and is a graduate member of the Zimbabwe Institute of Management. Email: pmasamha@gmail.com.

Recent Posts

Stories you will enjoy

Recommended reading