THE International Monetary Fund (IMF) has raised a red flag over the credibility of the government’s financial accounts, especially in relation to extra-budgetary units, classification of subsidies to state-owned enterprises and the categorisation of transactions in line with the framework of the IMF’s Government Finance Statistics Manual of 2014.
The government’s most significant challenge in terms of institutional accounting, according to an IMF’s Zimbabwe Technical Assistance Report, remains an accurate and comprehensive recording of extra-budgetary units across all ministries.
While the mission says there has been some progress in improving the quality of government financial statistics — although at a very slow pace — several ministries are not co-operating with the Auditor-General (AG)’s Office, which it points out hampers financial accountability.
This lack of accountability is evident in local authorities, extra-budgetary funds and state-owned enterprises.The IMF says there is a severe and persistent lack of compliance with reporting requirements laid out in the Public Finance Management Act and Public Debt Management Act. Part of the problem arises from a lack of credible enforcement mechanisms, giving public entities the leeway to continually operate with very little accountability.
This comes a week after Finance minister Mthuli Ncube indicated in his Mid-Term Budget and Economic Review statement that the country has recorded a ZW$800 million (US$11,1 million) fiscal surplus with no need for a supplementary budget. Analysts say the so-called surplus is misleading in that hospitals have no drugs, nurses are on strike and civil servants are denied a living wage.
The report also noted issues to do with lack of transparency in the pension and insurance sector as well as the Zimbabwe Asset Management Corporation (Zamco) liabilities.
The Paris Club, a grouping of international financiers, wrote to Ncube in June this year following his request for financial assistance. The grouping pointed out that among the conditions required for Zimbabwe to qualify for a financial bailout was transparency, especially to international financial institutions’ support to Zimbabwe.
The IMF noted that capital transfers in Zimbabwe’s outturn data were reclassified as subsidies while some below-the-line financing and recapitalisation operations, which were being recorded off the government balance sheet, were then brought onto the government balance sheet.
“Capital transfers in Zimbabwe outturn data were reclassified as subsidies. Because the majority of these transfers are made on the basis of levels of production activities or the quantities or values of the goods or services produced, sold, exported, or imported, these are more accurately classified as subsidies.
“Going forward, the government should work to provide a better breakdown of the category and move to classify subsidies consistent with the Government Finance Statistics Manual 2014 guidelines.
“The activities of government non-autonomous pension funds were reclassified to accommodate the cash accounting system currently being used in Zimbabwe. Note that this cash-based system is not optimal as no liabilities are realised in the form of pension obligations. This means that monitoring and evaluating the sustainability of these schemes is not possible under a cash-based system of accounting,” the IMF said.
“Going forward the government should move to a modified cash-based system that begins to record these obligations below the line. In the existing outturn data, transactions for the Reserve Bank of Zimbabwe (RBZ) through the Zimbabwe Asset Management Corporation (Zamco); and some transfers to public corporations were being recorded as ‘contingent liabilities’.
“Given that these financial commitments have been assumed by government, they should be classified on the balance sheet of the BCG (budgetary central government). Due to this reclassification by the mission team, government liabilities increased from the outturn statistics and the government deficit increased to account for transfers to public corporations.”
In moving towards more comprehensive coverage for the government financial statistics using a standardised and centrally monitored template, the IMF said the government should implement and monitor policy changes across the entire government as coverage is currently limited to the budgetary central government which only paints a narrow picture of the financial activities of all government entities.
The report notes that the authorities are making some progress towards higher quality and more comprehensive government financial statistics at the budgetary central government level, however, sufficient information for meaningful monitoring and surveillance of the entire general government in Zimbabwe should be considered a long-term goal with several remaining challenges including adherence to the Zimbabwe Public Finance Management Act, 2009 and a greater buy-in from senior officials.
“The authorities may need to enhance co-ordination and co-operation across ministries in terms of sharing of financial information for all public sector entities as defined in the Public Finance Management Act. At present, co-operation with the AG’s office in the Ministry of Finance and Economic Development from several ministries is extremely limited, leading to a lack of financial accountability for local authorities, extra-budgetary funds, and state-owned enterprises (SOEs),” the IMF said.
The Finance ministry would be required to formulate, and enforce clear punishment mechanisms for lack of compliance with the laws of Zimbabwe, which govern the government financial statistics, mainly the Public Finance Management Act and the Public Debt Management Act (2015) .
“The AG’s Office may need to expand the compilation of financial statistics to include all extra-budgetary funds, local authorities, and social security funds using a standardised GFSM 2014 format.”