Using the constitution to enforce fiscal discipline

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When Finance minister Mthuli Ncube presented the 2019 National Budget, he made a strong commitment to promote fiscal discipline. He pledged to “deal decisively with fiscal indiscipline” which has been a key driver of the fiscal deficit.

Alex Magaisa,lawyer

The minister also noted the current account deficit, fuelled by unbudgeted spending.

Fiscal discipline would therefore be one of the key pillars of the reform programme as Zimbabwe tries to plot a way out of the current economic morass. The need for discipline in all spheres cannot be overemphasised, especially with a government which traditionally has been profligate in its spending and opaque in the conduct of its economic affairs.

Transparency has to be at the heart of enforcing fiscal discipline. In this regard, Ncube has strong auxiliary measures in the constitution and legislative framework which are designed to promote transparency and accountability, but have hitherto been ignored or misapplied by the government.

The architects of the constitution were mindful of the importance of public finance in national development. They put in place measures to ensure the protection of public finance from abuse and measures to promote transparency and accountability in its usage. As I argue, all Ncube needs to do is to adhere to these constitutional and associated legislative provisions.

Along with the political support from his principal, this framework is his strongest defence against politicians who might wish to exert undue influence which might compromise fiscal discipline.
Principles
First, the constitution dedicates the whole of Chapter 18 to the issue of public finance. Section 298 provides that “there must be transparency and accountability in financial matters”.
In respect of public funds, it states that they “must be expended transparently, prudently, economically and effectively”. It also demands that “public borrowing and all transactions involving the national debt must be carried out transparently and in the best interests of Zimbabwe.”
Finally, public finance must be directed towards national development and there must be special provision for marginalised areas.

These are important principles which provide a firm foundation for a public finance system, which is transparent, accountable, prudent and development-oriented.
Consolidated revenue fund

A key part of the public finance system is the Consolidated Revenue Fund (CRF) which, for convenience, we might call the public pursue. Section 302 of the Constitution commands that all fees, taxes and borrowings and all other revenues of the government, whatever their source, must be paid into the CRF.

This means all taxes collected by the Zimbabwe Revenue Authority (Zimra) must be paid into the CRF. It is called public finance because it is money which comes from public sources and must therefore be used for public purposes.

There are only two exceptions where funds might not be put in the CRF. The first is where a law requires or allows the revenues to be paid into another fund established for a specific purpose. The other is where a law permits the authority that received the revenues to retain them, or part of them, in order to meet their expenses.

These exceptions account for the various funds that are established by law and also why for example, police have been allowed to retain fines they receive from traffic offences or why the Zimbabwe Broadcasting Corporation is allowed to retain radio and television licence fees.

However, recent history has shown that these funds are prone to abuse. Funds collected by the Zimbabwe National Roads Authority (Zinara) for example, were allegedly abused over the years. Likewise, the ability of police to collect spot fines led to outcries of abuse of motorists and corruption as it provided many rent-seeking opportunities. It is important for the minister to keep a watchful eye on these funds if he is to achieve his goal.

Spending

A key pillar of fiscal discipline is controlling public spending. In this regard, section 299 of the constitution gives a specific mandate to parliament to monitor and oversee expenditure by the state and all its institutions. This is to ensure that all revenue collected by the state through taxes and other measures is accounted for and that all expenditure is properly incurred and within limits set by law. Indeed, this function is critical in the enforcement of fiscal discipline.

This is why the national budget statement must be presented to, and debated and approved by parliament. Section 305 of the constitution is dedicated to requirements of the national budget statement and what ought to be done when government needs a supplementary budget. This entire process places parliament at the centre of the process.

Indeed, one of the grounds upon which parliament may be dissolved is where there is an impasse and it refuses to approve a national budget.

However, parliament can only be effective in this role it is independent and not conflicted. With the ruling party holding two-thirds majority in parliament, the government has no trouble having its budget approved as MPs are simply whipped into line. Furthermore, self-interest tends to provide a point of rare unity between MPs from both sides of the House. This is why citizens have been disappointed and critical of MPs from both main parties for demanding benefits that are out of sync with the condition of the economy and the generality of citizens.
Nevertheless, parliament has a committee system, which ideally should enable closer scrutiny of issues pertaining to specific areas. The Public Accounts Committee

is one of the most critical committees which focuses on the issue of public finance committee. Usually chaired by the opposition, it has a critical role in scrutinising the public finance system and holding the government to account.

Public debt

The goal of achieving fiscal discipline requires self-control when it comes to public borrowing. This is because public debt emanates principally from borrowing by the government. All governments borrow to finance their projects, but weak governments that lack discipline burden themselves when they over-borrow. This is largely due to extravagance, where the government ends up funding the budget deficit through borrowing.

Zimbabwe is in heavy debt. The Finance minister announced in November 2018 that the total debt stood at $$16,9 billion. Of this, domestic debt was $$9,5 billion, while foreign debt was US$7,4 billion. The country has been in arrears to foreign creditors since 1999, and these defaults have been the major reason for its failure to access lines of credit.

Without lines of credit, it is very difficult to carry out major development projects. A low-credit rating is also a turn-off for investors. The government has been issuing Treasury Bills incurring more debt and taking over debts of state-owned enterprises. The government has also exceeded the overdraft facility with the central bank, going beyond the statutory limits.

Framers of the constitution understood the necessity of placing constitutional limits on borrowings by the state and also providing mechanisms that would aid in enforcing the rules and accountability. The constitution requires parliament to set limits on how much the state can borrow and the total amount of public debt.

This also includes the guarantees that are given by the state. These limits must not be exceeded unless approved by parliament. The law must also set out the terms and conditions upon which government may guarantee loans.

Furthermore, government is required to publish terms of any loan or guarantee within sixty days of the conclusion of the deal. The Finance minister must also report to parliament on the performance of the loans raised or guaranteed by the state. The national budget must also include a “a comprehensive statement of the public debt of Zimbabwe”.

While general information on the total public debt is usually given, the specific detail envisaged in the constitution is often missing. There has not been compliance with the requirement to publish terms of loans and guarantees in Government Gazette within 60 days. All this does not bode well for transparency and accountability. It becomes very difficult to enforce and monitor fiscal discipline when the government fails and/or deliberately avoids providing information on loans and guarantees taken or provided by the state.

Conflicts of interest

A third area in the protection of and transparency regarding public finance is the use of state assets and opportunities. A key principle in this regard is avoidance of conflicts of interest. Conflicts of interest materialise where a public officer prioritises his or her own interests at the expense of state interests. Ideally, a public officer is supposed to look after and promote the best interests of the state. However, due to corruption, they might end up promoting their own interests.

This is usually because they have access to State property, information and offers that are made towards the state, including contracts that are offered by the state. It is in this area where a lot of corruption takes place, prejudicing the state and citizens.

The constitution also has a number of provisions that are designed to prevent or control the problem of conflicts of interest. Section 106 of the constitution contains important provisions that prevent conflicts of interest by Voce Presidents and Cabinet ministers. Section 196(2) which applies to all public officers provides that they “must conduct themselves, in public and private life, so as to avoid any conflict between their personal interests and their public or official duties, and to abstain from any conduct that demeans their office”.

This is a broad provision which ensures that whatever public officers do in their private life must not conflict with their public duties.

These provisions on conflicts of interest are also included in the Public Finance Management Act and the Public Entities Corporate Governance Act. Regrettably, appointments to boards of public entities still violate these basic principles, even under the so-called new dispensation. If the government fails to take a lead on best practices, the rest of the state structure will simply disregard the rules, using the tiniest of loopholes. If the Finance minister is serious about fiscal discipline, he has to do more to enforce compliance with conflicts of interest provisions because a lot of government assets are lost through such conflicts.

Auditor-General

Finally, the constitution provides for institutions that have an auxiliary role in enforcing fiscal discipline. These include law enforcement agencies, such as the police, prosecution and anti-corruption agencies. If they work effectively, they can combat financial crime and corruption, which cause serious leakages in the system. However, a key pillar of this monitoring and enforcement mechanism of the office of the Auditor-General.

Although the Auditor-General has traditionally produced excellent and critical reports regarding the country’s public finances, government has never given its output serious attention, let alone consideration. Many Zimbabweans who were awed by the performance of South Africa’s Public Protector during the Thuli Madonsela era, may be surprised to know that Mildred Chari, the Auditor-General is an unsung hero, whose impact could have been substantial if her work had been taken seriously by the government.

Conclusion

Zimbabwe has most of the ingredients that would support the goal of fiscal discipline. Framers of the constitution were mindful of the need to create a framework to support prudence in the use of public finance. There are enough provisions in the constitution to ensure this goal is achieved. However, it requires compliance, first and foremost by the Finance minister and by government and state institutions generally. The minister has all the legal instruments he needs to achieve his goal. The only question is whether there is sufficient political will.

Magaisa teaches law at Kent Law School, University of Kent. He has recently been a Reagan-Fascell fellow at the National Endowment for Democracy in Washington DC and a poynter fellow at Yale University, New Haven. He is also a former advisor to Morgan Tsvangirai and advisor to the constitution-making process and writes a weekly blog: www.bigsr.co.uk

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